US dollar index pressured ahead of US bond auctions.

3 mins read
US dollar index pressured ahead of US bond auctions.

The US dollar index (DXY) erased some of its earlier gains as US Treasury yields cooled ahead of key auctions. It dropped to $91.80, which is 0.40% below its intraday high of $92.15.

US Treasury yields cool

Last week, the US dollar index rose after the dovish Fed interest rate decision. In it, the bank decided to leave interest rates unchanged between 0% and 0.25% as most analysts were expecting. It also decided to continue with asset purchases even as analysts predict high inflation in the near term.

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Indeed, in an interview during the weekend, Larry Summers said that he expected prices to rise by between 3% and 4% later this year.

Today, the dollar index has retreated as investors focus on the bond market. The yield on the ten-year government bonds has dropped by 3% to 1.679%, which is substantially lower than last week’s high of 1.74%. This was the highest it has been in 14 months. The same trend is happening in other bonds. The yields on the 30-year and 2-year have also dropped to 2.385% and 0.14%, respectively, as shown below.

US bond yields
US bond yields

The US dollar declined by 0.20% against the euro and by 0.37% against the Swiss franc. It also fell by 0.25% against the Swedish krona and 0.10% against the Canadian dollar.

This week, the currency will react to important statements by Jerome Powell, the Fed Chair. Today, he will address a speech focused on innovations. On Tuesday and Wednesday, he will be interviewed by two Congressional committees. In these testimonies, he will likely talk about how the Fed plans to address the recovering economy. The upcoming bond auctions will also affect the currency.

The dollar index will also react to the latest new home and existing home sales numbers, flash manufacturing and services PMIs, and the final reading of US Q4 GDP data.

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US dollar index forecast

US dollar index
US dollar index chart

The four-hour chart shows that the dollar index has found a substantial resistance slightly below $92. It is also along the 23.6% Fibonacci retracement level and the pivot point of the standard pivot points. It has also moved below the 25-day exponential moving average (EMA). 

Therefore, a solid move below the current level will be bearish for the index. It will open the possibility of it moving below the support at $91.60, which was the highest point since February. After that, the price will likely drop to the first support at $91.40.