US Dollar Index looks offered around 93.00, focus on FOMC

• DXY gives away part of the recent gains and recedes to 93.00.
• US 10-year yields still navigate below the 1.30% yardstick.
• Markets’ attention will be on the release of the FOMC Minutes.

The upside momentum in the greenback loses some traction and forces the US Dollar Index (DXY) to recede from Tuesday’s peaks past the 93.00 mark.

US Dollar Index now looks to FOMC, data

After two consecutive daily advances, including the breakout of the 93.00 mark on Tuesday, the index now looks offered although it manages well to keep business around/above the 93.00 level so far on Wednesday.

Nothing from Chief Powell on monetary policy at his participation in a Q&A session with educators on Tuesday, while Minneapolis Fed N.Kashkari said the tapering of the bond-purchase programme could start later this year. He, however, ruled out any interest rate hikes for the next years.

Yields of the US 10-year reference climbed to the 1.27% area on Tuesday, although they failed to sustain the move and are now shedding some ground amidst the retracement in the buck.

In the US data space, the publication of the FOMC Minutes will be in the centre of the debate seconded by Housing Starts and Building Permits for the month of July.

What to look for around USD

DXY’s recovery managed to surpass the 93.00 level, although it lost some traction soon afterwards. Further gains in the dollar appear somewhat limited after the latest FOMC meeting saw the Committee talking down the probability of QE tapering in the near term despite the upbeat, albeit so far insufficient, progress of the US economy (and the broad consensus among investors). In the meantime, fresh coronavirus concerns, the solid pace of the economic recovery, high inflation and speculations around an earlier-than-expected QE tapering/rate hikes should remain key factors supporting the dollar for the time being vs. the reflation trade, which is expected to keep propping up the risk complex.

Key events in the US this week: Building Permits, Housing Starts, FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Index, CB Leading Index (Thursday).

Eminent issues on the back boiler: Biden’s multi-billion plan to support infrastructure and families. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Debt ceiling debate. Potential hint at QE tapering at the Jackson Hole Symposium.

US Dollar Index relevant levels

Now, the index is losing 0.07% at 93.07 and faces the next support at 92.47 (low Aug.13) followed by 92.24 (50-day SMA) and finally 91.78 (monthly low Jul.30). On the other hand, a break above 93.19 (monthly high Aug.11) would open the door to 93.43 (2021 high Mar.21) and finally 94.00 (round level).