- The US dollar bounced back today as more analysts came out in support of the currency.
- Analysts at Danske Bank, Deutche, and Morgan Stanley have changed their views.
- It also rose after the relatively strong inflation data from the United States.
The US dollar index (DXY) is bouncing back after more analysts changed their outlook for the greenback. The index is also reacting to the better inflation data from the United States. It is trading at $90.25, which is higher than this week’s low of $89.25.
Analysts turn bullish on the dollar
The recent resilience of the US dollar has attracted more bulls in the past few days. In a recent note, analysts at Morgan Stanley changed their view about the dollar to neutral due to the rising US stimulus. In 2020, the analysts were expecting the currency to fall by more than 5% this year.
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The same sentiment came from Miller Maley, an analyst at Miller Tabak, who said that the currency was extremely oversold, over-hated, and over-shorted. He said:
“The dollar is getting very ripe for a tradable bounce — one that will last at least several weeks and maybe even a couple of months.”
Further, in a note released this week, analysts at Danske Bank said that the currency will bounce back because of the Fed. They expect that the Fed will hike rates earlier than expected because of the likely recovery of the economy. They see the unemployment rate falling below 4% and inflation rising above 2%.
Indeed, data released today showed that inflation is bouncing back. The Consumer Price Index (CPI) increased by 0.4% in December after rising by 0.2% in the previous month. This led to an annualised increase of 1.4%.
The core consumer price rose by 0.1% in December leading to a 1.6% annualised increase. This was in line with what analysts were expecting. Real earnings rose by 0.1%.
Economists believe that the recently-unveiled stimulus package will boost retail spending and consumer prices. The situation will likely get better when Joe Biden implements another stimulus that analysts believe will be worth about $3 trillion.
US dollar index technical outlook
The dollar index declined since yesterday as investors in forex remained unsure about its price action. Today, it spiked to a high of $90.32 as more analysts shifted their position on the currency.
On the four-hour chart, the index is still above the descending black trendline that connects the highest points since November. It is also at the same level as the 14-period and 25-period exponential moving averages.
Therefore, in the near term, the dollar index could maintain the upward momentum as more people start going long the currency.
