DXY: US dollar index fall from grace continues after FOMC minutes

DXY: US dollar index fall from grace continues after FOMC minutes
Written by:
Crispus Nyaga
November 26, 2020
  • The US dollar index downfall continued its fall from grace after the FOMC minutes yesterday.
  • The minutes showed that members deliberated on the next actions on quantitative easing.
  • The minutes came after a mixed data dump ahead of Thanksgiving,

The US dollar index (DXY) fall from grace continued overnight as traders reacted to yesterday’s data dump and the FOMC minutes. It is trading at $91.92, the lowest it has been since September this year.

Dollar index
US dollar index technical chart

FOMC minutes

The Federal Reserve released minutes of its recent monetary policy meeting where they left interest rates and quantitative easing unchanged.

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In general, the minutes did not show anything new from the Fed. The only major policy they discussed was about the composition of its bond-buying program, which they called effective.

They also discussed the future of the program and highlighted three likely outcomes. First, they could increase the pace of asset purchases if the economy worsened. This is unlikely considering that a recovery is set to continue in 2021 because of the vaccines.

Second, the bank could decide to increase the maturities of the current bonds, and finally, it could decide to extend the period of the purchases. The minutes said:

“Most participants favoured moving to qualitative outcome-based guidance for asset purchases that links the horizon over which the Committee anticipates it would be conducting asset purchases to economic conditions.”

Minutes came after data dump

The FOMC minutes came a few hours after US statistics bureaus released a data dump because the country is in holiday today.

The numbers were generally mixed. The second estimate of Q3 GDP showed that the economy expanded by 33.1% in the quarter. That was a strong performance but one that missed the consensus estimate of 33.2%.

Durable and core durable goods orders increased by 1.3% in October while the number of people filing for initial jobless claims increased by 778k last week. That was the second straight week of increases, in a sign of the risks economy faces.

Meanwhile, further data showed that new home sales fell by 0.3% in October to 999k. Economists polled by Reuters were expecting the sales to rise by 1.5% to 970k. In the same month, the personal income fell by 0.7% while spending rose by 0.5%.

All these numbers raise the possibility that the US economy will contract or grow at a slower pace in the fourth quarter.

US dollar index technical analysis

US dollar index
US dollar index technical chart

The dollar index declined to an intraday low of $91.85 in overnight trading. On the four-hour chart, the price moved below the important support at $92.12. It is also on the lower side of the Bollinger bands, which means that bears are in control. The price is also below the short and medium-term moving averages.

Therefore, I suspect that the index will continue falling as bears aim for the next support at $91.50. However, with the DXY being oversold, it is possible that bulls could return and push the price higher, so consider practicing in a demo account.