It feels like the US Dollar has been paradoxically unbound to the traditional economic indicators. The catastrophic unemployment figures for March released last Friday could serve as a bright example of this decorrelation. These figures are traditionally considered as one of the most important indicators of the health of the economy and its perspectives. Weak unemployment data usually prompts the weakening of the Dollar, but the Greenback showed no signs of uncertainty and continued its rally at the end of the previous week. The US Dollar index (DXY) which represents a basket of six major currencies to the Greenback, recorded monthly highs of 101 point this Monday. However, the index dropped significantly on Tuesday to 100 points without any visible reasons that could come from economic data.
These fluctuations of the US Dollar can be explained only by the dynamics of the mood towards the pandemic. The American currency has again been recognised as the world's leading safe haven asset and this at reflects the appetite for risks just as well as the CBOE Volatility index (VIX), which is calculated by the implied volatility of the S&P 500 index options, and represents the monthly expectations of stock market behaviour. The Dollar index rose at the end of March and beginning of April as it responded to fears over the spread of the coronavirus and the accelerating dynamics of new recorded cases. The increasing demand for US Dollars reflects the run to US Treasuries, which are consider the most trusted safe haven instruments worldwide. The benchmark ten-year US Treasury yield fell from 1.28% on March 20 to 0.57% on April 3. This week was market with a decrease in newly registered infection cases (April 5 - 74,000, April 6 - 72,900 new cases) which was followed by the decreasing demand for the Greenback as the safe haven asset. The ten-year US Treasury yield went up by 0.74%.
With all this in mind the US Dollar index may continue to weaken as the pandemic is contained and the number of new cases decline. This trend may be accelerated as a bulk of liquidity is injected not only into the US economy but into other nations by providing direct loans and other instruments with access to the liquidity shed by the Federal Reserve (Fed) and other major central banks. Technical pictures may suggest that the support level to the DXY index may be at March lows of 98.4 points and upper margin of 101 points may serve as a resistance.
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