DXY: The US dollar index sell-off will continue – monthly chart
- The US dollar index has retreated ahead of the Joe Biden inauguration.
- Biden has pledged to unleash trillions of dollars in stimulus.
- The monthly chart shows that the DXY sell-off is far from over.
The US dollar index (DXY) has fallen by more than 0.30% ahead of the Joe Biden inauguration and as the bank earning season goes on. It is trading at $90.50, which is 0.45% above yesterday’s high of $90.47.
Dollar retreats ahead of Biden’s inauguration
The US dollar declined against most currencies today as forex investors look ahead to the new era of Joe Biden’s administration. It fell by 0.40% against the euro, 0.20% against the sterling, and by 0.60% against the Swedish krona.
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Investors believe that Joe Biden, with support from congress, will unveil financial spending worth trillions of dollars. He has already unveiled a $1.9 trillion stimulus package that he hopes will get congressional approval. The package will provide an additional $1,400 stimulus checks to individuals.
Biden’s policies have received support from Janet Yellen, the incoming Treasury Secretary. In a written statement yesterday, Yellen said that the country needed to act big to prevent a deep recession. In addition to the stimulus, Biden plans to offer more financial support through climate change and infrastructure spending.
The dollar index is also retreating as the bank earning season gets into high gear. Big banks like Goldman Sachs, JP Morgan, Bank of America, and Citigroup have already released impressive earnings. That has continued to supercharge US indices like the Dow Jones and the S&P 500.
The DXY will react to the interest rate decisions by the Bank of Canada and the European Central bank that will come out tomorrow and Thursday. These decisions are important because the Canadian dollar and the euro have a strong weighting in the dollar index.
US dollar index technical outlook
Turning to the monthly chart, we see that the US dollar index formed a double top pattern at $103 between 2017 and 2020. The neckline of this pattern is at $88, which is 2.40% below the current price.
Notably, the level of the double-top was along the 61.8% Fibonacci retracement level while the neckline is at the 23.6% retracement. Further, the index has moved below the 50-day and 200-day exponential moving averages.
Therefore, the two – double-top and EMAs – hint that the dollar weakness is probably here to stay. Still, the key level to watch will be the neckline. A move below this support will see it continue falling.