Daily Market Recap - DXY Holds steady ahead of the Fed Announcement

The greenback began the week on a negative note, falling to a nearly two-month low of 90.80 after recording its third consecutive week of declines last week.

The decline in U.S. long rates is one of the main reasons for the dollar's decline. With investors becoming less concerned about slippage in inflation, the U.S. 10-year yield fell to a five-week low of 1.56% on Friday despite strong economic data such as the better-than-expected preliminary April PMI figures, which were released on Friday at a record high.

The other constraining factor for the dollar is renewed optimism about Europe. After several months of prolonged health restrictions, optimism is returning thanks to better-than-expected economic statistics, but also the clear acceleration of the vaccination campaign and announcements by officials indicating that herd immunity could be achieved as early as July, whereas the current pace is more likely to be next winter.

The evolution of restrictions in Europe will continue to be a crucial element for the dollar, as sentiment still seems particularly pessimistic about the European recovery. If the restrictions are not lifted again and the recovery proves to be faster than expected, pressure could mount on the dollar.

In the nearer term, investors will learn about the Fed's monetary policy decision on Wednesday. No policy changes are expected, but Jerome Powell's words will be scrutinized as usual as investors look for clues as to when monetary policy will be normalized.

From a technical perspective, we can see the DXY returning close to its bullish oblique, which has acted as support since the beginning of the year, after having reached a high of almost 4 months at 93.30 points.

A pullback below this oblique would be a signal of fragility on the part of buyers. A further decline below the symbolic 90-point level would be an additional signal that the downtrend is continuing.

(Chart Source: Tradingview 26.04.2021)

If the price rebounds to the uptrend oblique or the symbolic 90-point level, the outlook would be bullish again in the short term until the recent high of 93.30 points, and then the symbolic 95-point level.

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.