DXY: Here’s why the US dollar index has declined for 3 straight days

The US dollar index (DXY) declined for the third consecutive day as traders continued reacting on yesterday’s US inflation data. It is trading at $91.55, which is 1% below this week’s high of $92.50.

Focus on bond yields

The dollar index is falling after data by the Bureau of Labour Statistics (BLS) revealed that consumer prices did not rise as fast as it was being feared. The headline consumer price index rose by a month-on-month rate of 0.4% leading to an annualised gain of 1.7%. This was in line with expectations. The core CPI that excludes food and energy rose by 1.4%. 

While US inflation is approaching the Fed’s target of 2%, analysts have started to question whether this is a worry. Indeed, the Dow Jones closed above $32,000 for the fifth time this year, and S&P and Nasdaq 100 have also rallied. Similarly, as shown below, the yield of the ten-year government bonds has declined to 1.502%. While it is still trending upwards, the trend has waned in the past few days.  The 30-year bond yields have also declined slightly.

The US dollar index is also falling ahead of the signing of the $1.9 trillion stimulus package. The House of Representatives passed the final copy yesterday and is set to be signed into law today. This bill will provide $1,400 to individuals making less than $75,000 per year. It will also extend enhanced unemployment benefits until September and provide more funding to states.

Meanwhile, the focus shifts to another comprehensive infrastructure building project by the Joe Biden administration. The infrastructure plan calls for the government to invest about $4 trillion in the next decade. If passed, most of these funds will come from borrowing, which will push the total US debt to more than $30 trillion.

The US dollar declined by 0.45% against the Swiss franc, 0.35% against the Canadian dollar, and 0.35% against the euro.

US dollar index technical forecast

The US dollar index declined sharply today. On the four-hour chart, the price managed to move below the 23.6% Fibonacci retracement level. It is slightly above the 38.2% retracement level at $91.42. It has also moved below the 25-period and 15-period exponential moving averages (EMA). 

Therefore, the path of least resistance for the DXY is bearish, with the next key level to watch being the 50% retracement at $91.08.