Dollar Index: Can Last Week’s Rally Extend Toward 98.00?

US fiscal stimulus is facing a significant “drop dead” date: the expiration of the $600/mo in extra unemployment insurance on July 31st

USA (2)

Global markets are trading with a decidedly risk-off tone to start the week on fears of COVID-19 hotspots in Beijing, Brazil, and certain Southern US states, among other areas.

While the battle against the global pandemic has alternated (and likely will continue to alternate) between progress and setbacks, the outlook for US fiscal stimulus is facing a potentially significant “drop dead” date in the coming weeks: the expiration of the $600/mo in extra unemployment insurance on July 31st. Over the weekend, White House Economic Director Larry Kudlow suggested that those funds would not be extended beyond the scheduled end date, a development that could abruptly reduce income for a broad swath of US consumers. There has been some talk about one-time bonus payments or a reduced expansion to unemployment insurance, but the fact remains that the US labor market will almost certainly continue to show double-digit unemployment levels by the end of July, and one way or another, those citizens are likely to see a significant “pay cut.”

This theme is one of the major factors driving the US Dollar Index lower so far today (though the greenback is edging higher against commodity dollars like the aussie and loonie as of writing). As the 1-hour chart below shows, the Dollar Index has so far stalled out at the 38.2% Fibonacci retracement of its two-week, 400-pip drop:

Source: TradingView, Gain Capital

Despite the lackluster start to this week’s trade, the Dollar Index is (so far) holding above its 50-hour exponential moving average, with an intact trend of higher highs and higher lows. If dollar bulls can step in to support the buck and convincingly break resistance in the 97.40 area, the Dollar Index could rally toward 97.80 (the 50% Fibonacci retracement) or 98.35 (61.8%) next. Meanwhile, a break below the 50-day EMA at 96.90 and especially Friday’s low near 96.50, the dollar index could resume its recent downtrend for a move back below 96.00.

More from FX

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account