US Dollar Index turns negative near 90.10 post-ISM

DXY fades the initial advance and returns to 91.10.
The ADP came in above estimates in January.
US ISM Non-Manufacturing also surprised to the upside.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, recedes to the 90.15/10 band following earlier 2021 tops around 90.30.

US Dollar Index looks to yields for direction

The index halts three consecutive sessions with losses on Wednesday after recording new yearly peaks around 90.30.

As usual in past sessions, the positive performance of US yields, particularly the 10-year benchmark, has been lending oxygen to the move higher in DXY. Rumours of Fed’s tapering (despite Powell and various FOMC members considered the idea as premature), the reflation trade, extra stimulus and a faster economic recovery in the US when compared with its G10 peers have been all supporting the current move in the dollar.

In the US docket, the ADP report came in at 174K in January, beating expectations. Additional data showed the ISM Non-Manufacturing at 58.7, also above consensus.

What to look for around USD

DXY regained upside traction and clinched new YTD highs above 91.00 on Tuesday on the back of the renewed offered bias in the risk-associated universe. The continuation of the uptrend in the dollar, however, is forecast to remain somewhat contained amidst the fragile outlook for the currency in the medium/longer-term, and always against the backdrop of the current massive monetary/fiscal stimulus in the US economy, the “lower for longer” stance from the Fed and prospects of a strong recovery in the global economy.

US Dollar Index relevant levels

At the moment, the index is retreating 0.07% at 91.12 and faces initial support at 90.42 (21-day SMA) followed by 89.20 (2021 low Jan.6) and finally 88.94 (monthly low March 2018). On the upside, a breakout of 91.30 (2021 high Feb.3) would open the door to 91.87 (100-day SMA) and finally 92.46 (23.6% Fibo of the 2020-2021 drop).