DXY: US dollar index is the most oversold since February 2018

DXY: US dollar index is the most oversold since February 2018
Written by:
Crispus Nyaga
11th August, 15:14
  • The US dollar index (DXY) is the most overbought since February 2018.
  • The currency is reacting to the strong producer price index data from the US.
  • It is also reacting to news that Russia has accepted a new coronavirus vaccine.

The US dollar index (DXY) is down today as investors reacted to the new developments on a coronavirus vaccine. The index is also reacting to the relatively strong producer price index (PPI) data from the United States.

US dollar index
US dollar index falls

Russia approves coronavirus vaccine

The US dollar index declined as investors reacted to news that Russia had approved the first coronavirus vaccine. In a statement, Russia’s Vladimir Putin said that scientists at Gamaleya Institute had completed early tests of the vaccine. He also said that his daughter had taken the vaccine.

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The breakthrough comes at a time when other countries are developing their vaccine. According to the World Health Organisation (WHO), more than 160 vaccines are currently in development. Some of the notable companies working on a vaccine are Gilead Sciences, BioNTech, Pfizer, Moderna, and AstraZeneca.

The potential of a vaccine is said to be negative for the US dollar index. As you can see in the chart above, the index reached a multi-year high of 102 in March this year as investors rushed to the safety of the dollar. Since then, the index has declined to the current low of 93.35 as the demand for dollars waned.

US producer price index rises

The US dollar index declined even after the relatively strong producer price index numbers. According to the US Bureau of Labour Statistics, the PPI for final demand increase by 0.6% ion July. That increase followed a 0.4% decline in the previous month. It was also the biggest increase in producer prices since October 2018.

The core PPI, which excludes foods, energy, and trade services rose by 0.5% in July. This was better than the consensus estimates of 0.1% and better than the previous decrease of 0.3%. It was also the biggest increase since 2019.

Other economic numbers from the US have been positive. On Friday, data by the Bureau of Labour Statistics showed that the economy added more than 1.8 million jobs as the unemployment rate declined to 10%. Another data by the Institute for Supply Management (ISM) showed that the manufacturing and services PMI increased to the highest levels this year. Retail sales and consumer confidence have been relatively strong also.

US dollar index forecast

US dollar index
US dollar index technical forecast

The weekly chart below shows that the US dollar index has been in a strong downward trend since March, when it peaked at 103.00. The price is along the lower line of the Bollinger Bands while the RSI has declined to the lowest level since February 2018. Also, the price is below the short, medium, and longer-term moving averages. Therefore, although the price seems to have hit significant support, the bias remains in downside.

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