U.S. Dollar Index Stumbles As Second Stimulus Bill Weighs

Summary:

The US dollar index was lower on the day as markets price in a second stimulus package after continued talks between Steven Mnuchin and Nancy Pelosi.

The US dollar index was 0.4% lower on the day as markets continue to price in a second stimulus package from the country’s lawmakers. Continued talks over the weekend between Treasury Secretary Steven Mnuchin and House Speaker Nancy Pelosi have yet to see any concrete details, but Pelosi has set Tuesday as a deadline for progress and any deal would likely be around the $2 trillion figure, so the greenback is under pressure from the debt and spending dynamic.

Today sees a speech from Federal Reserve chair Jerome Powell and traders will be looking for any remarks on policy regarding interest rates or inflation. The most recent inflation figures came in at 1.4% and it’s possible that the Fed’s plan for lower rates until 2023 could be challenged if prices continue to heat up. The dollar also saw strong retail sales last week, but this was tempered by higher jobless claims, so traders are unwilling to take any large bets on the dollar ahead of third quarter GDP figures.

With a light economic calendar for the dollar this week, the stimulus will dominate the price action. On Tuesday, Senate Majority leader Mitch McConnell will hold a vote on a $500 billion bill to extend the Paycheck Protection Program, which was designed to help businesses retain employees. The following day will also see another vote for the $500 billion “skinny” bill that was blocked by Democrats.

Today also sees a speech by ECB head Christine Lagarde, which could have an impact on the index with the euro being the key constituent. The Eurozone has been struggling with deflationary pressures and the bank has remarked on the potential for currency intervention, while further stimulus is expected nearer the end of the year.

Dollar Index Technical Outlook

The dollar index stumbled again at the key resistance around the 93.80 level and this would favour a downside move if the daily bearish candle holds. Support targets are 93.00 and 92.80 with a potential move to the downtrend channel at 92.00. A close above 93.80 is needed to see further upside. The Investing Cube team is currently available to help all levels of traders with the Forex Trading Course or one-to-one coaching.