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Source: Leckamon, Shutterstock
Joe Biden has taken the oval office on 20 January 2021. Post that the market participants have been on the lookout for the reassessment of risk and return attributes in many financial assets. The U.S dollar is one of the major assets, which is now under investors’ lens.
The green bill has been on a freefall mode, and the fate of the currency is now one of the major questions that is concerning traders and long-term investors alike.
After achieving 103 mark in March 2020, the dollar index has seen a considerable decline with the benchmark dollar index that tracks the performance of the U.S. dollar against a broad basket of currencies, declining to 89 levels in January 2021.
After a brief uptick, the dollar index has once again hit the crossroads, making it difficult to build on gains observed over past couple of days.
The COVID-19 virus situation has worsened across the States, and economic stimulus are flooding into the market to keep the economy in balance, which in turn, is allowing the federal reserve to adopt a wait and watch policy, and the change in interest rates are unlikely to happen any time soon.
In a situation, where money printing is in excess, and the monetary inflation fears unfolding, it is becoming difficult for the dollar index to come out of woods. Apart from these domestic factors, a slight improvement in certain badly hit economies is flooding money towards risky currencies, leading to a rush in cross-currency pairs against the U.S. dollar.
Dollar Index (Spot) Daily Chart (Image Source: Refinitiv Eikon Thomson Reuters)
On following the daily chart, it could be seen that the index is currently trading above the short-term downward sloping trendline; however, it breached the long-term downward sloping trendline.
- The short-term downward sloping trendline might act as immediate support for the index. Also, as it is overlapping with the mean value of the 20-day simple Bollinger Band®, it could be decisive in nature.
- As pointed out before, the market seems to be reassessing the risk and return of the currency, leading to a considerable decline in the volatility of the index, and a squeeze in the Bollinger Band®.
- The +2 Standard Deviation, which is overlapping with the 50-day exponential moving average might act as primary and decisive resistance for the index. A break and price action above the same could seed bullish sentiments ahead.
- The major resistance for the index is at 93.50, which is currently overlapping with the 200-day EMA. A break and price action above the same, could change the direction of the trend, leading to a bullish sentiment.
- However, on the flip side, the index is trading near to its crucial support, and a break and price action below the same could seed bearish sentiments, prompting the stock to test the extension of the long-term sloping downward trendline.
- It should also be noticed that the spread between the plus DI and minus DI has finally reduced drastically, suggesting that there has been a shift in volatility from downside to upside. Also, the ADX is sloping downward, reflecting that the current downtrend in the index might be losing momentum.
