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- The US dollar index is up by more than 0.70% today; its best performance since August.
- It is reacting to the new strain of coronavirus that is spreading in the UK,
- Traders are also reacting to the new stimulus package from the United States.
The US dollar index (DXY) is having its best day since August as the market reacts to the new strain of coronavirus. It is trading at $90.63, which is substantially higher than last Thursday’s low of $89.75.
New coronavirus strain
The US dollar is often viewed as a safe-haven currency because of the strength of the American economy. It is also the most popular currency in the world. As a result, investors tend to move to the currency when risks rise. For example, the currency rose to a multi-year high of $103 when the World Health Organisation (WHO) declared Covid a global pandemic.
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Today, demand for the US dollar has risen after the UK warned about a new strain of coronavirus in the country. The new variant spreads 70% faster than the original virus. According to the country’s health officials, the virus is the main reason why the number of covid cases spiked by more than 35,000 yesterday.
In response, several European countries like Germany, France, and Italy announced a ban of flights to and from the UK. Other countries like India, Canada, and Israel also announced a new ban.
Subsequently, all currencies that make the dollar index declined. The sterling dropped by more than 1.80% while the euro fell by 0.70%. Similarly, the Swiss franc, Swedish krona, Japanese yen, and Canadian dollar declined by more than 0.50%.
The US dollar index is also rose in response to the agreement in Washington about stimulus. In a statement yesterday, Senator Mitch McConnell and Speaker Nancy Pelosi, said that they had reached a $900 billion stimulus package.
The proposed bill will include $600 in stimulus checks and $300 in enhanced unemployment benefits. It will also have funds for states and local governments, airlines, and small businesses. Congress will vote for the deal possibly today.
US dollar index technical outlook
Turning to the four-hour chart, we see that the dollar index has bounced back from a multi-year low of $89.75 to today’s high of $91. The price is now wavering around the 23.6% Fibonacci retracement index. It is also along the upper side of the Bollinger Bands and the descending blue trendline.
Therefore, the main scenario is where the price continues to rise as investors in forex aim for the 38.2% retracement at $91.50.
On the other hand, the invalidation for this thesis will be the drop below $50. It will send a signal that there are still more sellers in the market.
