USD Index eyes levels below $92 as investors focus on FOMC minutes

USD Index eyes levels below $92 as investors focus on FOMC minutes
Written by:
Michael Harris
August 19, 2020
  • The dollar index lost over 5% since the end of June, registering the largest monthly loss in 10 years in July
  • Investors will be focused on the FOMC meeting minutes, that are due later today
  • The bears are likely to target $91.90 where the next horizontal support sits on bearish FOMC meeting minutes

The dollar index (DXY) is experiencing another difficult week, barely holding above the 27-month low reached overnight as equities move to fresh highs.  

Fundamental analysis: All eyes on FOMC minutes

The DXY remained relatively unchanged today against a basket of currencies in European markets and barely above the April 2018 low it hit on Tuesday. 

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The dollar index lost over 5% since the end of June, registering the largest monthly loss in 10 years in July, due to increasing market risk sentiment and many investors who put their faith outside the U.S.  

Marshall Gittler, chief of research at BDSwiss Group, said skepticism about the country’s ability to manage the spread of COVID-19, the current U.S.-China trade tensions and fears that Congress will fail to agree a new stimulus package are significantly damaging the dollar.

“The outlook for U.S. growth – already falling behind Europe – is getting grimmer,” Gittler wrote in a note.

Similarly, MUFG Bank’s analysts see that the rising S&P 500 index has harmed the greenback. In addition, the concerns regarding the country’s economic prospects have weighed on the dollar’s appeal. 

Investors will be focused on the Federal Open Market Committee (FOMC) Meeting Minutes, that are due later today. They will scrutinize minutes to look for indications about possible actions in the future. 

Elsewhere, the British pound rose almost 0.2% on official data about an unexpected increase in British inflation to its highest level since March. 

Technical analysis: Sellers eyeing levels below $92

The relief rally has failed as the dollar penetrated below the previous 2-year low at $92.52. Yesterday’s lowest point of $92.13 marks the intraday support for the dollar, as the sellers look to extend the downtrend. 

We may see a continuation of a bearish run following the release of the FOMC meeting minutes. In this case, the bears are likely to target $91.90 where the next horizontal support sits.

Summary

The U.S. dollar is still trading around its 27-month low, as the rising S&P 500 index and boiling U.S. – China trade tensions continue to weigh on the currency. Investors will closely follow the FOMC Minutes meeting due later today as sellers remain in control.