- The US dollar index fell to its four-week low as traders reacted to news of a coronavirus vaccine by Moderna.
- The index is also reacting to upbeat economic data from the United States and other countries.
- Today's decline means that bears will then target $95.50, the lowest level since March 10.
The US dollar index (DXY) is down by more than 0.35% as traders reflect on the positive news from Moderna. The index is trading at $95.80, which is the lowest it has been since June 10 this year. Also, it is in its fourth straight day in the red today.
Moderna vaccine shows positive results
The US dollar index rose sharply in March after the World Health Organisation (WHO) named coronavirus a global pandemic. At the time, the index reached a multi-year high of above $102 as global investors and businesses rushed to the safety of the dollar.
Since then, the dollar index has declined by more than 6% since most countries have started to reopen. For example, New Zealand has successfully eliminated the disease while the number of new cases in China has been falling. This decline is because demand for the greenback has fallen even as its supply has risen. This supply has jumped because of actions of the Fed, which has expanded its balance sheet by more than $2 trillion.
Today, the US dollar index is falling after Moderna released a new report about its vaccine. In its second trial, the vaccine was administered to 45 patients in different doses. The results showed that the vaccine induced the desired immune response in all patients. Therefore, the company will then administer its third trial with a bigger sample of 30,000 patients. The positive results mean that we could have a vaccine in the next few months.
US economic data improve
The US dollar index also reacted to upbeat economic data from the United States. Data from the Federal Reserve showed that total industrial production jumped by 5.4% in June after increasing by 1.4% in May. Analysts polled by Reuters were expecting the production to jump to 4.3%. Still, the production remains 10.9% below the pre-pandemic highs.
In the same month, manufacturing output rose by 7.2% in June after rising by 3.8% in the previous month. Analysts were expecting the production to jump by 5.6%. Meanwhile, mining production declined by 2.9%.
Another data released by the Bureau of Labour Statistics (BLS) showed that the price index for US imports rose by 1.4% in June after rising by 0.8% in May. The median estimate for the index was 0.8%. At the same time, the export prices rose by 1.4%.
These numbers reinforce what we have received recently. For example, data from BLS showed that the economy added more than 4.8 million jobs in June after adding 2.5 million in May. Also, inflation has improved while the recent manufacturing and services PMIs have been positive. This growth is happening in most countries, as evidenced by the UK inflation data released today.
Still, the biggest risk is the rising number of coronavirus cases. As you recall, Dr. Fauci recently warned that the number of daily infections could reach 100,000 per day. Today, the US confirmed more than 67,000 new cases, the biggest number ever recorded.
US dollar index technical outlook
The US dollar index has dropped sharply as seen in the daily chart above. The index is below the 50-day and 100-day exponential moving averages. Also, it has moved below the descending triangle pattern that I talked about yesterday. Therefore, the price may continue falling since it seems like bears have prevailed. As such, the next target is $95.50.