The US Dollar Index (DXY) extended the decline on Tuesday with a 0.4% plunge, as the index that measures the performance of the USD with G10 currencies continues to crumble under the weight of the Fed’s dovish stance. The markets appear to be pricing in the Fed’s reinforcement of this position in Wednesday’s FOMC minutes, prompting heavy selling on the greenback. This weakness has driven the USD Index below 90.00 for the first time in nearly three months.
Several FOMC officials were on the newswires late Monday to maintain their transitory outlook on rising US inflation. A cooling of US long-term bond yields further depressed sentiment on the greenback on Tuesday.
Technical Outlook for USD Index
Tuesday’s decline in the USD Index found support at 89.71, after which bulls were able to force a bounce. However, this support level remains under pressure as markets expect the FOMC minutes to reinforce the Fed’s dovish stance, which is USD-negative. A collapse of the 89.71 support clears the pathway for the price to target the 89.50 support (31 December 2020 low), after which 89.18 could come into the picture as an additional target if weakness persists.
On the flip side, an extension of the bounce allows bulls to push the corrective advance towards the 90.00 psychological resistance (22 February and 11 May lows). Above this level, additional potential resistance levels are seen at 90.50, 90.96, and 91.26. Any of these may become rally points at which new offers for the USD Index appear.