Risk aversion drove the US dollar index to its highest level since September 29.
Investors are focusing on the U.S. elections, new lockdowns in Europe and the upcoming economic events.
On Thursday, the Fed will release its interest rate decision, followed by non-farm payrolls numbers.
The U.S. Dollar Index (DXY) is rising slightly today as traders prepare for a relatively busy week with the U.S. elections, the Federal Reserve meeting, and non-farm payrolls. The index is trading at $94.12, slightly above the intraday low of $94.00.
Dollar index rises to its highest level since September 29
Risk aversion sets in
The biggest driver for the Dollar Index today is risk aversion as the number of potential events increases. The biggest event this week is the U.S. election, which will be held tomorrow. According to the latest polls, analysts and investors believe that Joe Biden, the former vice president, will win.
However, they are all aware that the polls were wrong before. They were wrong in the 2016 Brexit vote and in the last US election. They are also concerned about the possibility of a contested election or delayed results due to the large number of Americans voting by mail.
The dollar index is also rising because of the risk of further suspensions as the number of Covid 19 cases increases in Europe and the United States. Yesterday the UK became the first major country to announce a major lockdown, which will result in the closure of most companies. Germany has also announced another partial closure, with bars and restaurants being closed.
Investors are worried that current growth will slow down. Today, data from Markit and the Institute of Supply Management (ISM) showed that the manufacturing sector performed well in October. In Europe, the PMI was above 50 in most countries, which is a sign of expansion.
In the United States, Markit data showed that the manufacturing PMI rose from 53.3 to 53.4. Further data from ISM showed that the PMI rose to 59.4, the highest level since 2014. As a result, investors fear that the US and Europe will experience a W-shaped recovery as countries and states introduce new lockdowns. In a statement Chris Williamson of Markit said
“It is inevitable that the pace of economic expansion will slow after the rise in the third quarter, but the strength of the PMI points to a recovery, for which the underlying trend will strengthen further at the beginning of the fourth quarter”.
The Dollar Index is also looking at other events this week. The Federal Reserve will announce its interest rate decision on Thursday, followed by the Non-Farm Payrolls numbers on Friday.
Technical Analysis of the Dollar Index
Technical Table for the Dollar Index
The four-hour chart shows that the Dollar Index has been in an uptrend since September 21, when it fell to a low of $92.45. Today it has risen to its highest level since September 29th. The price is above the 15-day and 25-day exponential moving averages, while the great oscillator is above the neutral line.
It has also moved above the 23.6% Fibonacci retracement level. As such, the bullish trend should continue as the bulls target the next resistance level at $94.50. Become a great trader with our free currency trading course.