US dollar index
The US dollar index (DXY) declined by more than 65 basis points today as investors rushed to other currencies as coronavirus risks started to ebb. The index, which measures the strength of the USD against a basket of currencies, is trading at 99.22, which is its lowest level since Friday.
The US dollar index is made up of several currencies, all which rose today. The Swedish krone rose by more than 45 basis points against the USD while the British pound rose by more than 1.15%. Similarly, the euro and Swiss franc rose by more than 60 basis points and 40 basis points respectively. The only dollar index constituent that was not changed was the Japanese yen.
The biggest reason why the dollar index has declined us that of risk aversion as investors start to focus past the coronavirus pandemic. That is because many countries have started to open-up their economies. For example, Japan has just ended the nationwide state of emergency while countries like New Zealand and Australia have started to ease movement.
Meanwhile, investors are relatively calm that protests in Hong Kong will not pose a major challenge. With mainland China soon to be in control of security, there are chances that the city will be relatively safe.
At the same time, the recently released data show that other countries have bottomed. For example, last week, the flash manufacturing and services PMI data show that the countries are starting to come back.
Later today, the dollar index (DXY) will react to the new home sales and consumer confidence data. Analysts expect the lagging home sales data to be lower because most Americans were at home. But they expect consumer confidence to show some progress.
Download our Q2 Market Global Market Outlook
On the daily chart, the US dollar index is trading at 99.22. On the four-hour chart, the price is slightly above the 50% Fibonacci retracement level. It is also slightly below the 50-day and 100-day exponential moving averages and bears seem to be in control. Therefore, I expect the pair to test the 50% retracement at 98.78.
On the flip side, a move above the blue resistance level of 99.92 will invalidate this trend. This price is the highest level since Monday last week. It is also where the previous upward momentum started to reverse.