- The DXY index is looking to extend Friday’s gains to the 91.00 region.
- US 10-year yields are sailing above the 1.40% level so far.
- The US ISM Manufacturing PMI stands out on today’s economic calendar.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, encounters strong resistance near the region of 91.00 at the beginning of the week.
US Dollar Index focuses attention on returns and data
After Friday’s strong advance, the DXY index finds some resistance to extend the move to the upside and retest the key barrier at the 91.00 level Monday.
The recent recovery of the dollar has come hand in hand with the strong rebound in yields in the US bond market, where the benchmark 10-year bond managed to briefly climb the zone above 1.55% for the first time since February 2020 (February 25).
Yes OK the prospects for higher inflation in the coming months (and its echo in real returns) and the superior performance of the US economy compared to other G-10 countries continue to support the strength in the dollar, the increasing probability of further fiscal stimulus and the strong recovery expected in the world economy after the pandemic continues to be the main support in risk appetite.
Later in the day, ISM’s Manufacturing PMI will catch the eye of investors, followed by Markit’s final PMI for February and the FOMC’s L. Brainard speech.
What can we expect around the USD?
The DXY index manages to regain strength and approach the 91.00 level. The reversal of the recent dollar weakness came in tandem with a sharp rebound in bond yields to the levels last recorded a year ago. While reflation trading and vaccine optimism continue to limit bullish attempts on the dollar, bouts of concern about a pickup in inflation stemming from expected additional fiscal stimulus could provide some pockets of strength in the dollar for the lower. moment. Against this, the occasional rise in the dollar should remain short-lived amid the overall bearish outlook for the currency in the medium / long term. This, in turn, is reinforced by the Fed’s strengthened mega-accommodative stance until “further substantial progress” is observed, persistent rumors of additional fiscal stimulus, and prospects for a strong recovery in the world economy, which they are considered to support the best confidence in risk appetite.
Key events this week in the US: ISM Manufacturing PMI (Monday), ADP Report, ISM Non-Manufacturing PMI and Fed Beige Book (Wednesday), Initial Jobless Claims and Powell’s Speech (Thursday), NFP Non-Farm Payrolls (Friday).
Eminent Background Issues: Trade conflict between the United States and China under the Biden administration. Reduction of speculation in the face of economic recovery. Real US interest rates versus Europe. Could US fiscal stimulus cause overheating? Future of the Republican Party after Trump’s acquittal.
Relevant levels of the US dollar DXY index
At the time of writing, the DXY index is gaining 0.01% on the day, trading at 90.89. A breakout of 90.97 (February 26 high) would open the door to 91.05 (February 17 high) and finally 91.60 (February 5 high). On the other hand, the next support is at 89.68 (February 25 low), followed by 89.20 (January 6 low) and 88.94 (March 2018 low).
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