Dollar Index (DXY) plunge takes a breather – Is bottoming in sight?

The US dollar index (DXY) is having a reprieve today after six consecutive days of losses. The index is up by 0.15% as traders refocus on the FOMC meeting that will start later today. It is trading at 93.80, which is slightly higher than yesterday’s low of 93.50.

FOMC meeting and stimulus in focus

The US dollar index is up slightly today as the Fed starts its monthly meeting today. With the economic outlook changing, traders will be waiting for additional information from the bank. For example, the number of coronavirus cases in the US has continued to rise as more states roll back their reopening plans.

Therefore, with interest rate hikes being ruled out, analysts expect that the bank will signal its willingness to do more to cushion the economy. In a statement, Kathy Bostjancic, an analyst at Oxford Economist, said:

“With the recent stalling of economic activity and rising risks of a double dip recession, we look for Chair Powell to retain a very cautious outlook.”

Meanwhile, the US dollar index is also reacting to the stimulus packages unveiled by Republicans and Democrats. In a statement, Mitch McConnel said that their package will include a $1,200 check to individuals.

But it will reduce the unemployment payment check from the current $600 to $200. The goal is to push more people to go back to work. On the other hand, democrats have unveiled a similar package but with the $600 benefits remaining. Therefore, a lot of deliberations will happen between the two sides in the coming days.

US dollar index (DXY) technical outlook

The US dollar index has been in a sharp decline in the past few days. Today, it has found some reprieve as the US dollar has gained against key currencies. It is up by 0.20% against the euro, 0.60% against the Swedish krona, and 0.20% against the Swiss franc. On the weekly chart, we see that the price is slightly below the 38.2% Fibonacci retracement level.

This retracement connects the lowest level on April 2014 and the highest level in December 2016. The price is also below the 50-day and 100-day exponential moving averages. This means that the downward trend could continue as bears target the next50% retracement at about 91.35.

On the flip side, a move above 97.30 will invalidate this trend. This price is along the 100-day EMA and slightly below the 23.6% retracement.

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US dollar index forecast

US dollar index

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