US Dollar, DXY, Fiscal Stimulus, Coronavirus Vaccinations, Unemployment Claims – Talking Points:
- In particular, risk appetite waned during APAC trading, as the tightening of coronavirus restrictions in Hong Kong weighed on market sentiment.
- Loose monetary policy conditions and the prospect of additional deficit spending may US dollarPotential on the rise.
- The US Dollar Index (DXY) looks set to revisit annual lows as price continues to follow in a descending channel.
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Risk appetite appeared to wane during Asia-Pacific trade, as tightening coronavirus restrictions outweighed optimism about the fiscal stimulus. Hong Kong’s Hang Seng Index fell 1.32% after the government said it would lock down Kowloon’s urban core. Australia ASX 200 slipped 0.34% while that of Japan Nikkei 225 fell 0.44%.
In the foreign exchange markets, AUD, NZD and GOUJAT lost ground to its main counterparts, while the USD and CHF vastly outperformed. Gold and silver slipped lower as the greenback’s resurgence weighed on precious metal prices.
Looking ahead, a wave of PMI figures in Germany, the United States and euro-Azone at the top of the economic rankings alongside Canadian retail sales figures.
Stimulus hopes to weigh on the US dollar
The US dollar is expected to continue losing ground against its major counterparts as loose monetary policy conditions and the prospect of additional budgetary support weighs in particular on the greenback associated with the refuge.
President Joe Biden is determined to provide an additional $ 1.9 trillion in tax assistance to support the country’s nascent economic recovery, his proposal calling for an additional $ 1,400 per person in direct stimulus payments, improving unemployment benefits, funding state and local governments, and increasing spending to help distribute the coronavirus vaccine.
However, it seems relatively unlikely that the bill will pass in its entirety, given recent comments from several Republican members of the bipartisan group which helped pass the $ 900 billion aid package at the end of 2020.
Senator Susan Collins said “It’s hard for me to see, when we’ve just spent $ 900 billion in aid, why we would have such a big package now,” while Mitt Romney – the spearhead from the bipartisan group – and Lisa Murkowski also said it was too early to provide further help.
That being said, with just 16.5 million Americans receiving at least one dose of the coronavirus vaccine and continued weekly unemployment claims hovering above 5 million, the provision of additional support almost seems a necessity.
Moreover, Janet Yellen, candidate for Treasury secretary warning that avoiding “doing what we need to do now to deal with the pandemic and the economic damage it is causing, would likely leave us in a worse financial position,” may encourage both sides of the aisle to be d ‘agreement.
Therefore, intensifying pressure for additional deficit spending could weaken the greenback against its major counterparts and ultimately lower the US dollar index (DXY) in the coming weeks.
Continuing Unemployment Claims in the United States (2020 – Present)
Daily U.S. Dollar Index (DXY) Chart – Leading Price of Lower Descending Channel
From a technical standpoint, the outlook for the US Dollar Index (DXY) remains biased downward as prices continue to follow within a Descending channel.
With the RSI plunging back below its neutral midpoint and the MACD preparing to move below its “slower” signal line counterpart, the path of least resistance appears lower.
A daily close below psychological support at 90.00 would likely trigger a retest of range support at 89.20 – 89.40. Compensation which likely signals the resumption of the primary uptrend and brings 2018 low (88.25) back in the crosshairs.
Alternatively, staying constructively perched above 90.00 could allow buyers to drive the index towards the monthly high (90.95) and channel resistance.
DXY daily chart created using Tradingview
4-Hour Chart US Dollar Index (DXY) – Breaking Uptrend Hints For Further Losses
Zooming in on the 4-hour chart reinforces the depicted bearish outlook and daily timeframe, as price captures the uptrend from the monthly low and collapses through the 200-MA defining feelings (90.30).
A convincing break out of range support at 89.95 – 90.05 would likely intensify short-term selling pressure and set a path for price to challenge the Jan 8th low (89.66). An obstacle that probably highlights the monthly trough.
On the contrary, moving above 8-EMA (90.19) may neutralize short-term selling pressure and open the door for the index to retest psychological resistance at 90.50.
4 hour DXY chart created using Tradingview
– Written by Daniel Moss, Analyst for DailyFX
Follow me on twitter @DanielGMoss
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