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DXY and The Effects of Current US Monetary Policy

Updated: Nov 4, 2020

The DXY has been making some serious moves lately, mostly straight to the downside. However there is reason to believe that this move is nearing its end and a relief rally may be ready to start soon. Below is a daily chart of the Dollar Index.

As you can see a severe down move began late April/Early may. Since that time the downtrend line has held firm. However in the last 24 hours it was broken for a short time. This suggests that the bulls are trying to stage a comeback or that some sort of "mean reversion" could be in play. Notice that log resistance line and the bottom support line are converging, which also indicates a move is imminent in the next couple of days or weeks.

Obviously, two big reasons for the major down move is new Fed Policy of allowing higher inflation as well as the massive amount of stimulus already input to the financial system as a result of COVID-19. This has been helpful until now in keeping the DXY deflated, but with so much reluctance in the U.S. Government to inject the further stimulus most economist agree is needed and a very contentious election coming up, we could easily envision a "Flight-to-Safety" trade and at least relief rally in the DXY.

Keep an eye on US Dollar denominated pairs as we await to see where the next big move is.

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