DXY: This US Dollar index rebound does not have legs - ING

The US dollar index (DXY) is holding steady after the strong US consumer price index (CPI) and producer price index (PPI) data. It rose to $90.75, even as analysts at ING warned about the dollar strength.

ING is not bullish on the dollar

The US dollar index has risen for the past two consecutive days as investors react to the recent strong economic data from the United States.

On Wednesday, data revealed that consumer inflation rose to a 13-year high of 4.2%. Core consumer inflation also rose by 2.3%, which was above the Fed target of 2.0%.

On Thursday, data showed that the overall producer price index (PPI) surged by 6.2% in April after rising by 4.2% in the previous month. This was the fastest growth rate since 2011. The core producer price index rose by 4.1% after rising by 3.1% in the previous month. 

Still, the Federal Reserve and many analysts believe that the ongoing inflation pressure is transitory. Furthermore, the reason why the year-on-year growth has been severe is that the US was in lockdown in April last year.

Indeed, analysts at ING don’t believe that the ongoing dollar index recovery will last long. They wrote:

The US dollar index is also reacting to the latest initial jobless claims numbers. The data revealed that more than 473k Americans applied for initial jobless claims last week. The total number of continuing claims rose from 3.69 million to 3.66k. The data came at a time when some states have started to limit access to unemployment insurance.

US dollar index analysis

The four-hour chart shows that the dollar index dropped to a low of $90 this week and then quickly bounced back. The DXY seems to be forming an inverted head and shoulders pattern, which is usually a bullish signal. It has also approached the intersection zone of the red and green Ichimoku clouds. Therefore, in the medium-term, the index may continue rising as the talk of inflation remains alive. However, in the next few weeks, the index will likely move below $90.