US Dollar Outlook: DXY Index Hammered as Treasury Yields Ebb
May 18, 2021 8:00 PM +03:00Rich Dvorak, Analyst
US DOLLAR PRICE OUTLOOK: DXY INDEX HITS 12-WEEK LOW AS INFLATION FEARS WANE
US Dollar bears induce the Greenback down to its weakest level since late February
DXY Index now trades at the red year-to-date after falling -4% from its March peak
Softer Treasury returns because of less anxiety about Fed tapering probably fueling USD weakness
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US Dollar selling pressure has been felt across the board of major currency pairs on the session, although the Greenback has weakened especially contrary to the Euro with EUR/USD up roughly 60-pips intraday. Seeing that EUR/USD cost activity is the greatest component of the DXY Index, this has mostly helped strongarm the broader US Dollar lower.
The latest expansion of US Dollar weakness leaves the DXY Index on pace for its fourth-consecutive decrease and trading in negative territory year-to-date. This could follow Treasury yields withdrawing slightly with the ten-year shedding about 6-basis points after failing to eclipse 1.7%. Perhaps waning fears of inflation and Fed taper risk explain these movements as I previously noted how US Dollar prognosis hinges Treasury yield volatility (and lack thereof).
That said, the wider US Dollar is appearing somewhat extended here as the relative strength index flirts with'oversold' land. Also, there appears to be just two glaring technical support levels that US Dollar bulls may look to shield. First and foremost is that the 89.70-price degree on the DXY Index, which will be obscured from the 25 February swing reduced. The bottom Bollinger Band can help stem US Dollar selling strain as well. Invalidating technical support given by the 89.70-price degree, but would probably open the door for US Dollar bears to target the 06 January swing reduced.
On the flip side, DXY Index rally attempts could bring a test of the negatively-sloped 20-day easy moving average to attention. Surmounting bearish trendline resistance could coincide with follow-through higher toward the 50-day moving average. Nevertheless, so as to help judge where the DXY Index heads next, I'd continue to keep close tabs on Treasury yields and their normally strong direct connection with the broader US Dollar.