The negative outlook for the DXY continued into this week as accelerating US Dollar weakness sent the USD Index crashing towards the December 2019 lows. The USD Index is down 1.51% for the week; it currently looks set to extend the losing streak into the third week.
The decline seen on the USD is occurring across several currencies: The AUD, CAD, Euro, GBP and NZD are all gaining against the greenback. Even exotic currencies such as the NOK, SEK and emerging market currencies such as the MXN and ZAR are not left out. Therefore, it is safe to say that improvement in the global outlook across the board is responsible for the diminished USD sentiment, rather than an inherent dip in the outlook for the USD.
Recovery in the global economy will drive the risk-on sentiment. The USD is a currency for the risk-off plays, and with markets assuming riskier sentiment as a result of bets on global economic recovery, the USD is likely to experience more weakness in the coming weeks. This means we may yet see further weakness on the USD Index.
On the way towards the trough for the week at 96.60, the DXY broke below the 200-day moving average. The DXY is now aiming for the 96.54 support level. Failure to achieve this price support could allow for a pullback towards 97.16. Further resistance lies at 97.80 and 98.19.
Conversely, extension of the price decline could allow for a test of 96.54. A breakdown of this price level brings in 95.86 into focus, with the lows of March 2020 at 94.66 and 95.2 located not too far away.