- The US dollar index is under pressure as US stimulus deal fades.
- There are still red lines between the Senate, White House, and House of Representatives.
- The index is also watching the ongoing issues on Brexit.
The US dollar index (DXY) is in the red today as the market continues to focus on US stimulus talks in Washington and the stalemate in Europe about Brexit. It is trading at $90.85, which is below yesterday’s high of $91.23.
US stimulus hopes fade
Congress and economists have in the past few months emphasised on the need for another stimulus package. But the process of providing the much-needed package has hit a wall in congress where Democrats control the House while Republicans control the Senate.
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Yesterday, the problems continued as senate’s Mitch McConnel rejected a White House and House offer for a $900 billion deal. The main differences are key specific provisions that include liability protections for companies and funding for city and states.
Republicans believe that any stimulus bill should protect companies and schools from legal liability during the pandemic. They also reject any measures to fund cities, most of which are led by Democrat leaders.
Economists believe that the American economy will suffer immeasurable damage without stimulus. With millions of people unemployed, the situation could worsen as the existing businesses shut. Further, most cities, like New York and Los Angeles are facing large budget deficits. This could put more people at risk.
This is happening a day after Japan announced a $700 billion stimulus deal to support the economy.
Brexit is also a concern
The dollar index is also reacting to the ongoing problems in Europe. Besides, the euro and sterling have the biggest DXY constituents.
In recent days, the possibility of a no-deal Brexitbetween the EU and the UK. The two sides have differed on key issues, including on fisheries, fair trade, and governance of the deal.
With time running out, traders will be watching out for the upcoming meeting between Boris Johnson and European leaders.
Ideally, a deal between the two sides would be a good thing for the euro and sterling but negative for the dollar index.
Meanwhile, traders are also focusing on the upcoming interest rates decision by the European Central Bank (ECB) and Bank of Canada (BoC). Economists expect that the two will leave rates unchanged with the ECB expected to boost its asset purchases.
Dollar index technical outlook
Like you can see in your forex spread betting brokers, the dollar index has been on a sharp decline in the past few months. At the current price, it is just a few points above the psychological level of 90. Similarly, the Relative Strength Index and Stochastic oscillator are all at the oversold level while the price is below the 25-weighted exponential moving average (WMA). Therefore, the path of least resistance for the index is lower.