As the U.S. dollar index (DXY) fell to a low of 89 on Tuesday and the following Thursday, the U.S. currency was hovering at a low level again. This is the third time since April 2018 that DXY has been so weak, and some analysts believe that the currency may fall even lower.
The RSI level indicates that the US dollar is “a bit too long”, indicating an “oversold” area
After the Covid-19 guidelines have shaken the global economy and caused severe damage to the supply chain, analysts and economists have been expressing concerns about the U.S. dollar last year. After more than 12 months of mandatory coronavirus requirements and business closures, the US economy is still very difficult to recover.
Market Insider researcher Ben Winck recently explained that analysts are confused by the “stumbling block” of the U.S. economy because “experts have seriously misjudged the labor market.” In addition, the U.S. dollar has fallen for two consecutive months, down 3.7% since the end of March. .
On Tuesday, the U.S. dollar index (DXY) slipped to 89, a data point that the U.S. dollar has not touched in three years since April 2018. This is the lowest level of DXY since February, and it will quickly reach 89 in December 2020. . The DXY chart also shows that two days after Thursday morning (EST), the dollar touched 89 again.
As early as April 2018, shortly after DXY fell to 89, the U.S. dollar soared to new heights. However, analysts predict that this time the U.S. dollar may fall further from $89 by 10%. Rich Dvorak, an analyst at dailyfx.com, further explained that the U.S. dollar looks “expanded” and “oversold”.
Dvorak wrote when the DXY touched 89 on Tuesday: “As the relative strength index tends to be’oversold’, the dollar’s gains against the dollar have expanded. In addition, the dollar bulls seem to have two obvious technical support levels that may be Defend. The first is the 89. 70 price level of the DXY index, which was supported by the February 25 swing low.” Dvorak added. Dailyfx.com’s market strategist continued:
The Bollinger Band at the bottom may also help ease the selling pressure of the dollar. However, invalidating the technical support provided by the 89.70 price level may open the door for dollar bears to target the January 6 swing low.
U.S. Treasury bonds continue to stagnate, and British bonds are bullish due to the reduction in quantitative easing policies
Since Dvorak and many market strategists have noticed this trend, the negative value of the dollar has also put bond yields in a corner. Dvorak further pointed out that the weakness of the U.S. dollar was attributed to “weakening U.S. Treasury yields due to reduced concerns about the Fed’s gradual shrinking.”
The financial publication Barron’s explained that the U.S. dollar was at a “critical level” near $89, and the 10-year U.S. Treasury bond fell to 1.65% from 1.75% on March 31. However, in Europe and the United Kingdom, the recovery has improved slightly as the percentage of 10-year bonds in the United Kingdom has increased.
In a conversation with Barron’s, the founder of Sevens Report Research, Tom Essaye emphasized how the Bank of England (BoE) curbed quantitative easing (QE) policy.
“With the recovery of the European Union and the increase in vaccination rates…and the fact that the Bank of England has gradually reduced its quantitative easing policy [quantitative easing] Essaye emphasized to the financial columnist (now, people are increasingly expecting that the European Central Bank will reduce the quantitative easing policy this summer), this has pushed up the exchange rate of the pound and the euro against the dollar, because the Fed still firmly believes that it will not even start Consider reducing the exchange rate.Jacob Sonenshine (Jacob Sonenshine) Wednesday
Fed Chairman talks about curbing central bank asset purchases: “When should we talk, we will let the public know”
This has not happened to Fed officials until recently, because the U.S. Central Bank has only now begun to talk about gradual reductions in quantitative easing measures. On Wednesday, the Fed released the transcripts of its most recent policy meeting from April 27 to 28, and many Fed members began to discuss reducing the central bank’s economic support.
Although most central bank policymakers emphasized that the Fed needs to witness “substantial” economic progress in order to relax its quantitative easing policy. Fed officials believe that the monthly purchase of $120 billion in bonds has buffered the US economy and has accelerated the recovery so far.
In addition, Fed Chairman Jerome Powell (Jerome Powell) faces the pressing question of when to start reducing quantitative easing at a monetary policy press conference.
“No, it’s not the time yet. We have said that we will let the public know in due course, and we have said that before any actual decision to reduce asset purchases, we will do it, we will do it Yes.” told reporters at the C-Span meeting after the April policy meeting.
Analysts, economists and financial experts believe that the weakening of the U.S. dollar, rising inflation and falling bond yields are mainly due to the Fed’s large-scale quantitative easing policy to counter the country’s Covid-19 economy.
Although not everyone is bearish on the U.S. dollar, some believe that the U.S. dollar is recovering. Bloomberg Economics editor Peter Coy also published an article this week about the Federal Reserve’s April policy meeting. Economists pointed out that “Fed officials are optimistic about the economy.”
Coy’s editorial further emphasized that “no matter what the bears say, the dollar will not collapse.” Bloomberg economics editors seem to believe that policies of stimulus and corporate openness “paved the way for a rebound”. Koy said this has caused “many people” to talk about “calling back some support for the economy.”
Although some media commentators have stated that Fed members have begun to “sharply prepare to withdraw” from the quantitative easing policy, the central bank emphasized that it will not do so at this time. The U.S. dollar’s desire for the Fed to relax its currency is still correct, and the U.S. dollar cannot adjust quickly enough to rising inflation. The purchasing power of the United States is declining rapidly, and judging from the current state of the dollar index (DXY) chart, the future reliability of the dollar seems frustrating. The data and figures clearly show that Koi’s optimism about the dollar is unfounded.
The DXY chart of the US dollar on Thursday morning showed that the US dollar fell below 90 again and returned to 89.887.
What do you think of the dollar falling to a key level this week? Let us know your thoughts on this topic in the comments section below.
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