DXY: US dollar index rally pauses ahead of Biden stimulus speech

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 Jan 12, 2021
  • The US dollar index rally paused today ahead of a key speech by Joe Biden.
  • He will talk about his planned stimulus package that could include more stimulus checks.
  • Some Fed officials have started turning hawkish.

The US dollar index (DXY) is little changed as investors eye the upcoming stimulus speech by Joe Biden and the ongoing political crisis in the United States. It is trading at $90.40, which is 1.40% above this month’s low of $89.20.

DXY
US dollar index has been rallying

Stimulus speech

On Wednesday, data by ADP showed that the American economy lost more than 123,000 jobs in December. Two days later, data from the official statistics agency revealed that the situation was worse as the economy shed more than 140,000 workers. 

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Therefore, attention will shift to Joe Biden, the incoming president, who will deliver a stimulus speech on Thursday. In it, he will outline the key priorities his government plans to focus on in the first stimulus package. 

The new package, which will be about $3 trillion, will include a $1,400 stimulus check and funding for states and local governments. It will also have funds for vaccine distribution, student loan issues, and infrastructure. 

The speech will come at a time when some Fed officials have started sounding relatively hawkish. In a statement yesterday, Robert Kapla, the head of Dallas Fed, said that the bank will possibly start tapering its quantitative easing policy this year. He said that, in the estimation, the economy will expand by 5% this year while the unemployment rate will decline to about 5%.

In another statement, Raphael Bostic of Atlanta said that he expected the bank will start raising rates in the second half of 2022. That will be relatively sooner from what the bank signaled in its recent rate decision. He said:

“I do think there is some possibility that the economy could come back a bit stronger than some people are expecting. And if that happens, I am prepared to support pulling back and recalibrating a bit of our accommodation.”

Meanwhile, the dollar index is also reacting to the ongoing crisis in the US. Yesterday, Democrats launched their second impeachment efforts against Donald Trump for supporting last week’s riots.

US dollar index technical analysis

Dollar index
US dollar index technical chart

The US dollar index has been in an upward trend this year, erasing some of the losses made last year. It has moved above the descending trendline that connects the highest points since November on the four-hour chart. The 25-period and 50-period exponential moving averages have made a bullish crossover.  You can practice these crossovers in a free forex demo account.

The index also seems to be forming a bullish consolidation pattern. Therefore, the index will likely continue rising as bulls target the next resistance level at $91.0. 

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