DXY: 3 reasons why the US dollar index is soaring today

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 Oct 22, 2020
  • The US dollar index has risen by 0.15% today and erased some of its yesterday's losses.
  • The index is reacting to news the latest news on stimulus and the upcoming election.
  • The death of a Covid-19 trial subject in Brazil has also contributed.

The US dollar index (DXY) rose in overnight trading as traders continued to focus on US stimulus and the upcoming general election. The index is trading at $92.80, which is substantially higher than yesterday’s low of $92.48.

US dollar index has bounced back today

Divisions on US stimulus remain

The US dollar has two main roles in the world. It is the world’s biggest reserve currency and also the currency of the United States. Therefore, because of the role of the US to the world economy, the currency tends to gain whenever risks rise. Indeed, the dollar index reached a multi-year high at the peak of the Covid-19 pandemic in March.

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Three main factors are moving the dollar today. First, in the US, there are still divisions on stimulus as recent talks have not yielded any results. The core of the differences is the varying goals by the White House, House of Representatives, and Senate.

The White House has suggested a $1.8 trillion rescue package that includes funds for companies and individuals. The house, which is under Democrats majority, has proposed a $2.2 trillion bill that allocates funds to individuals, companies, and many local governments. The senate, on the other hand, has been reluctant to pass any bill that goes above $500 billion.

Without stimulus, the challenge is that the American economy will be at risk with more companies announcing layoffs. Bankruptcies are also increasing.

Covid-19 vaccine subject dies

Second, the dollar index is reacting to news that Brazil has suspended a Covid-19 vaccine trial by AstraZeneca after a subject died. While the trial is ongoing in other countries, the challenge is that we have a long way to go before a vaccine arrives. This is happening at a time when the number of coronavirus cases is rising around the world.

Finally, the USD is rising because of the risks of the upcoming general election in the United States. In a statement yesterday, the Director of National Intelligence (DNI) accused Russia and Iran of running a wide election interference campaign. Iran, he said, was sending a significant number of emails discouraging Americans from voting for Donald Trump.

Later today, the dollar index will react to the existing home sales numbers from the United States. Analysts polled by Reuters expect the data to show that sales rose by more than 6.3 million in September from 6.0 million in the previous month. In addition, the currency will react to the initial jobless claims data.

US dollar index technical outlook

Dollar index
US dollar index technical chart

The four-hour chart shows that the dollar index has risen from a low of $92.47 to a high of $92.77. The price is slightly below the important resistance level of $93.00. It is also slightly below the 15-day and 25-day exponential moving averages. The index is also between the 50% and 61.8% Fibonacci retracement level. Therefore, for today, I suspect that bulls will remain in control as they eye the resistance at $93.00. Start your trading career with our free forex trading courses.

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