Welcome to another AspireFX blog. We’ve seen the majority of dollar data come out positive as of late which leaves the question to be asked, what is actually causing dollar weakness across the board? There has been a surge in new COVID-19 cases reported in the US which has caused the dollar to take a knock.
Let us take a look at the DXY (dollar index) above to see what kind of impact the surge in new cases in the US has caused. On the 4 hour chart above, we can see how the dollar was recovering slightly since it fell from highs of around 100, which saw us bounce off of the ascending trend line 3 times as shown by the green arrows. We then had a break and retest of that trend line shown by the red arrow. Since falling to the low of 95.7 marked by the first green arrow, we can see how reactive the 96.50 zone has been which is indicated by the highlighted box. We can see how we broke through that zone and have since come up to retest it. Looking at current price action we are currently rejecting 96.50, moving steadily to the downside. It is extremely beneficial when trading dollar pairs that you look at the DXY as it gives you a good indication of how well the dollar is performing against all major currencies.
Looking at the line chart above we can see that since the start of this month, the new cases reported daily has been climbing and there were 62 425 new cases reported yesterday alone. The reason this is causing the dollar to fall is because investors are becoming growingly skeptical of the United States’ ability to deal with the pandemic, there are also fears of a second lock down coming into play which would cause serious damage to their economy. Earlier this afternoon, the US Food and Drug Administration has confirmed that a vaccine developed by a company called Melio has been approved. This can potentially provide huge relief for the dollar if they can contain the current outbreak and implement the vaccine effectively.
When trading the forex market, technical and fundamental analysis are the two major factors but this year has proved that societal issues such as a global pandemic, also needs to be taken into account when it has an impact on this scale. Remember to make sure the risks you plan on taking in the market are calculated and as always stick to your personal trading plan. Hit the follow button below to subscribe to our blog and receive notifications sent directly to your email when a new blog is released.