DXY: US dollar index takes a breather as CDC warns on unreported covid-19 cases

DXY: US dollar index takes a breather as CDC warns on unreported covid-19 cases
  • The US dollar index is little changed today as traders react to the latest warning by the CDC.
  • In a statement yesterday, the agency estimated the current coronavirus cases in the US at more than 20 million
  • The index also reacted to strong personal spending data even as incomes fell in May.

The US dollar index is slightly unchanged today as traders react to the rising coronavirus cases in the United States and personal spending data. The index is trading at $97.41, which is slightly lower than yesterday’s high of 97.60.

US dollar index

US coronavirus cases rise

The number of coronavirus cases in the United States is on an upward trend. According to health officials, the number of new infections rose by more than 40,000 on Wednesday. That was the highest number even as states continued to reopen. In total, the number of active cases has jumped to more than 1.25 million.

Worse, the current number is not accurate, according to the Centres for Disease Control (CDC). In a statement yesterday, the agency estimated the number of infections in the country at more than 20 million. That means that more than 5% of the country’s population has the virus.

As a result of the rising infections, Texas paused its reopening process, meaning that people are being asked to stay at home. There is a likelihood that more states like Arizona, California, and New York will also reinstate their lockdowns.

The surging cases has complicated the US recovery since recent numbers have been relatively positive. For example, the manufacturing and services sector is growing and the economy is creating more jobs. Similarly, new home and vehicle sales have been on an upward trend.

US dollar index reacts to income and spending data

The US dollar index is also reacting to the personal spending and income data from the US. According to the commerce ministry, personal spending increased by 8.2% in May as more states continued to reopen. That number was better than the previous decline of 12.6%.

At the same time, personal incomes declined by 4.2% in May since most people were not working. The core PCE index rose by 1.0% year-on-year and by 0.1% month-on-month. Personal spending numbers are important because they represent about 60% of total US economy.

These numbers came a day after we received the final reading of US GDP data and April’s durable goods data. According to the statistics office, the economy contracted by 5.0% in the first quarter after expanding by 2.1% in Q4.

In May, durable goods orders rose by a record 15.8% after falling by 18.1% in the previous month. Core durable goods orders, which exclude the volatile food and energy products, rose by 4% after falling by 8.2% in April. These numbers suggest that the US is recovering even though the rising cases are complicating the situation.

Meanwhile, data from Michigan University showed that consumer confidence improved in the past week. Consumer sentiment rose from 72.3 to 78.1 while their feelings on current conditions increased from 82.3 to 87.1. Consumer expectations of the economy increased from 65.9 to 72.3.

US dollar index technical analysis

US dollar index
US dollar index technical outlook

The US dollar index is trading at $97.50. On the daily chart, this price is below the 50-day and 100-day exponential moving averages. The price is also slightly below the 38.2% Fibonacci retracement level. Most importantly, the index seems to be forming a three white soldiers pattern, which is usually considered bullish. Therefore, the DXY may continue rising as bulls approach the next resistance level at 97.84.

By Crispus Nyaga
Crispus Nyaga is a finance analyst and trader with more than 7 years industry experience. He's contributed to some of the leading financial brands in the world including Seeking Alpha, MarketWatch, Forbes, and Investing.com. Crispus has an excellent understanding of global macroeconomic and geopolitical issues, is a big fan of golf, and lives in Nairobi with his wife, son, and nephew.
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