DXY: US dollar index heads for weekly gain as consumer confidence rise

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jun 12, 2020
  • The US dollar index (DXY) rose this week as concerns about a second wave of the virus rose.
  • Data from University of Michigan showed that consumer sentiment is rising this month.
  • The data show that the US economy is in a slow path to recovery barring another phase of the virus.

The US dollar index (DXY) was little changed today as investors shrugged the rising risks of a second wave coronavirus infection in the United States. The index is trading at $96.72, which is significantly higher than this week’s low of $96.75.

US dollar index seesaws

US dollar index wavers as consumer sentiment improves

The consumer sentiment in the United States is up in June as more states start to reopen. That is according to the preliminary consumer sentiment data released by the University of Michigan.

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The data showed that the index of consumer sentiment increased from 72.3 in May to 78.9 this month. This was the second month of straight gains and was better than what analysts were expecting. Economists polled by Bloomberg were expecting the sentiment to jump to 75.0.

Another data by the university showed that sentiment on current conditions increased from 82.3 in May to 87.8 this month. Analysts were expecting the current sentiment to increase to 85.0. Finally, the index of consumer expectations rose from 72.3 in May to 78.9 this month. In the statement, the researchers said:

“The turnaround is largely due to renewed gains in employment, with more consumers expecting declines in the jobless rate than at any other time in the long history of the Michigan surveys.”

Consumer sentiment is very important for the US economy where consumer spending accounts for more than 70% of the GDP.

These numbers come at a time when the economy is recovering, the stock market is soaring, and when the number of new infections is slowing. Also, the data came a week after the nonfarm employment data showed that the economy created more than 2.5 million new jobs in May.

DXY cools as investors ignore risks of a second wave

The US dollar index is little changed even as the risks of a second wave of coronavirus rise. Among the currencies in the index, the US dollar gained against the Japanese yen, Swiss franc, and pound. Yen and franc are considered safe-haven currencies and the respective central banks will deliver their rates decision next week. The dollar declined against the Canadian dollar and sterling. Also, it was unchanged against the euro.

Meanwhile, US stocks have rallied, with the Dow Jones, S&P 500, and Nasdaq rising by 2.2%, 1.87% and 1.70% respectively. The VIX index, which measures volatility in the S&P declined by 8%.

Still, there are risks that a second wave of the virus will happen in the United States following two weeks of protests. Indeed, the number of new infections is rising in several states like North Carolina, Florida, and Nevada.

A new wave of the virus, coming at a time when no vaccine or drug exists, would be positive for the US dollar index as it happened in March.

In the coming week, other than the virus, the DXY will be moved by several economic data from the US. These include the New York industrial production data, US retail sales numbers, manufacturing production, business inventories, and industrial production numbers.

US dollar index technical outlook

US dollar index
US dollar index technical analysis

On the daily chart, the US dollar index is on its second straight day of gains and it remains below the 50-day and 100-day exponential moving averages. It is also above the 23.60% Fibonacci retracement level. A close in the green today will mean that buyers have prevailed and that they will now try to target the 38.6% retracement at $98.75. On the flip side, a close below today’s open at $96.8 will mean that buyers are not all that strong and that the index will decline on Monday.

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