The mighty Dollar nursed losses on Tuesday morning as a return of restrictions in some U.S States slightly neutralized optimism around a vaccine. Growing concerns over the transfer of power to President-elect Joe Biden and surging coronavirus cases in not only Europe but the United States compounded to the growing caution – offering the Dollar Index (DXY) some additional support.
One can’t help but feel that the Greenback may be waiting for a fresh directional catalyst to make its next big move up or down. The DXY has been trading with the same range on the daily timeframe since July 2020!
Before we sink our teeth into the technicals, there are a couple of fundamental themes that will most likely influence the Dollar’s valuation for the rest of 2020.
As the race for a coronavirus vaccine builds momentum, markets are becoming increasingly optimistic over a sense of normality returning across the globe. Should a COVID-19 vaccine become widely distributed and revive not only global trade but economic growth, the Dollar could tumble amid the risk-on mood. However, it is far too early for any celebrations.
On the data front, the US retail sales data will be published this afternoon with investors looking for fresh clues on whether the Federal Reserve will make a move in December. In October, retail sales are forecast to rise by 0.5% on a monthly basis, compared to the 1.9% witnessed in September. Over the past few months, US retail sales have been quite volatile thanks to the coronavirus menace. However, a disappointing figure will most likely weigh on sentiment and boost expectations over the Fed taking action sooner than later.
It must be kept in mind that US infections are sky rocketing while Congress remains entangled in an ongoing stalemate over a fresh round of US stimulus. Despite the bright spots of economic data, the United States is certainly not out of the woods yet. Given how the Fed is expected to leave interest rates unchanged until at least 2023, the central bank my simply buy more bonds through its QE program.
Back to the technicals…..
Believe its or not, the Dollar Index (DXY) still remains in a wide range on the monthly timeframe with support at 91.80 and resistance at 94.80. The last time prices traded outside these regions was back in June 2020. If bulls are able to conquer the 94.80 resistance level, the Dollar Index could challenge 98.00 and beyond. However, a breakdown below 91.80 is seen opening the doors back towards 88.80.
Nothing new here on the weekly timeframe. Prices are respecting a bearish channel; however strong support can be found around 92.00. Lagging indicators such as the 20 Simple Moving Average and MACD point to the downside. However, a daily close above 94.00 may trigger a move towards 94.80 and 95.00.
On the daily charts, the Dollar Index is trading below 92.70 as of writing. Sustained weakness below this level may open the doors back towards 92.00 and 91.80. If bulls regain enough confidence to push back above 92.70, prices may venture towards 93.30 and 94.00, respectively.