The US Dollar index has been swinging around rather violently since the coronavirus gripped financial markets. Unlike stocks, bonds, and economically sensitive commodities there hasn’t been a clear sustainable trend. The sharp decline, rally, then sharp decline again since late February has forced traders to make fast trading decisions. That is anticipated to give-way to a sustainable trend, but which way will that be? The broader trend has been upward, and the most powerful portion of those swings was to the upside. Risk is thus skewed at this time towards seeing stabilization that results in a move higher. This may take a little time to work itself out, but soon one way or the other we should have something more concrete to work with.
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US Dollar Index Daily Chart (swings to settle)
EUR/USD is about 57% of the USD index, and as such it is the primary driver. It won’t take much more of a downturn to put the Euro back on a trend-line that extends higher from the early 1980s, if you take into consideration the currencies that were folded into the single-currency. Below you can see it back to 2000, which even on its own makes it an impressive long-term threshold. It was briefly breached during the recent sell-off, but held on a monthly basis. It’s support until it breaks, but if it does it could send EUR/USD much lower, and conversely the DXY much higher.
EUR/USD Monthly Chart (major long-term support)
For all the charts we looked at, check out the video above…
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—Written by Paul Robinson, Market Analyst
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