The widespread flight to safety seen in Thursday’s trading has helped the USD Index back to its feet, but only just. The USD Index is barely recovering after a two-week hammering it has taken following the dump of the US Dollar on hopes of economic recovery. Those hopes are now hanging in the balance after the Fed’s economic projections painted a grim outlook for the US economy.
Predictions by the Fed that more-than-doubled the GDP forecast to the downside compounded similar warnings of global economic contraction from the OECD earlier in the week. Risk-off sentiment now pervades the market, and the US Dollar is seeing safe-haven demand once more, prompting a slight recovery on the DXY.
The USD Index nosedived to the 95.72 support level, which I identified a few days ago in an earlier analysis of this asset. The price candle of yesterday bounced off that low and has been able to stage a recovery which now challenges the 96.46 resistance area. A breakout of this price level allows the DXY to target the 97.16 resistance (double bottom of 18 October and 1 November 2019), and put 97.71 (18 November 2019 lows and 24 December 2019 highs) well within its sights. Increase in risk aversion could allow for an advance towards 98.19 and 98.60, in that order.
Conversely, if the break of 96.46 is not confirmed, a rejection and renewal of the selloff could open the door to downside targets at 95.19 (10 March 2020 lows) and 94.62 (9 March 2020 lows).