Daily Market Recap - DXY towards a rebound in the dollar (and long rates)?

The dollar index (DXY) has been under pressure in the previous weeks but could quickly resume its uptrend. The DXY shed over 1.6 percent since reaching its march high at 93.437 and is now trading closer to 91.8 on Tuesday.

The trend of the dollar will depend a lot on the trend of the US long rates. Currently consolidating, US long rates have been under pressure over the past two weeks as portfolios rebalance. However, the trend in long rates remains bullish, and the US 10-year yield could make new highs in the next few weeks, provided that investors' economic and inflation outlooks are revised upwards.

For this to happen, the vaccination campaign will need to continue to accelerate, Joe Biden's infrastructure investment plan will need to be approved by Congress, and economic releases will need to continue to show a strong recovery in the US economy.

Bad news in Europe would also support the dollar, as the greenback is the main counterparty to the single currency. Therefore, setbacks on the vaccination campaign, a further extension of health restrictions, or bad European statistics would do the dollar well.

Todays two key statistics to watch were the Eurozone Economic Sentiment Index which came in well below consensus at 66.3 and the US CPI inflation registered slightly above expectations at 2.6 percent. The next macro announcements to pay attention to will be the Beige Book on Wednesday, the New York and Philadelphia Fed manufacturing indexes on Thursday, and the Eurozone CPI inflation and the University of Michigan consumer confidence index on Friday.

In terms of technical analysis, the fundamental outlook for the DXY is bullish despite the dollar's retracement since late March. Nevertheless, it will be preferable to wait for a breakout from the recent daily highs which flattened out just below the 20-day MA around 92.4 before repositioning to buy. If that happens, the first resistance to watch will be the April 6th swing low level around 92.80, followed by the March 31st high at 93.437.

(Chart Source: Tradingview 13.04.2021)

If the dollar retracement continues below support at 92 points, the near-term outlook would become bearish to the mid-March low at 91.34 points, then eventually 90.62 points.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.