US Dollar Index trims gains and returns to 96.00, US CPI in sight

• DXY falls back to the 96.00 region on Wednesday.
• US 10-year yields dropped below the 0.70% level.
• Inflation figures tracked by the CPI next on tap in the docket.

The greenback, in terms of the US Dollar Index (DXY), has returned to the negative territory in the 96.00 neighbourhood, eroding part of Tuesday’s strong advance,

US Dollar Index focused on data, coronavirus

News that the White House has started negotiations to propose a relief package to battle the impact of the coronavirus on the economy has bolstered the strong recovery in the index and lifted yields on Tuesday, although much of that initial effect has already faded on Wednesday.

Indeed, after testing 2-day highs around 96.50 on Tuesday, the dollar lost momentum and it has now receded to the current 96.00 zone ahead of the opening bell in the Old Continent.

In the meantime, cases of infected people continue to grow in Europe and is currently favouring the return to the safe haven universe – with JPY, CHF and bonds as the main beneficiaries – in detriment of the buck.

In the US data space, the publication of February’s inflation figures gauged by the CPI will be the most salient event later on the day.

What to look for around USD

Despite the ongoing bounce off multi-month lows near 94.60, the outlook on the index remains on the bearish side for the time being. In the meantime, the dollar remains under heavy pressure in response to rising bets on another Fed move on rates at the March meeting, declining yields and heightened concerns on the impact of the coronavirus on the economy. Attention still remains on the White House and the probable announcement of a package of fiscal stimulus anytime soon.

US Dollar Index relevant levels

At the moment, the index is retreating 0.49% at 96.01 and faces the next support at 94.65 (2020 low Mar.9) seconded by 94.20 (38.2% Fibo of the 2017-2018 drop) and then 93.81 (monthly low Sep.23 2018). On the upside, a break above 96.58 (weekly high Mar.10) would open the door to 97.78 (200-day SMA) and finally 98.19 (monthly high Jan.29).