Dollar Index drops in Asia, signaling risk-on

Dollar index dips 0.18% as the US stock futures rise.
Risk sentiment remains strong despite the lingering coronavirus concerns.
Focus this week will be on the US earnings seasons and the US inflation and retail sales data.

Omkar Godbole FXStreet Contributor

Dollar index (DXY), which tracks the value of the greenback against majors, is flashing red at press time, indicating a risk-on environment in the financial markets.

The DXY is trading at 96.48 at press time, representing 0.18% decline on the day. The American dollar faced rejection at 97.80 in the last week of June and has been on a declining trend ever since with investors betting buying equities and risk-sensitive currencies on hopes that the worst of the coronavirus crisis was behind us.

Markets have treated the greenback as the safe-haven currency since the beginning of the coronavirus crisis in early March. As such, the dollar tends to weaken when risk-sensitive currencies and the equity markets put on a good show. At press time, the futures tied to the S&P 500 are reporting a 0.5% rise.

However, one may argue that markets have lost touch with reality, as the number of coronavirus cases in the US and other parts of the world continues to rise. For instance, the US state of Florida reported an increase of more than 15,000 new cases on Saturday, a record for any state, according to Reuters.

A continued rise in cases could force authorities to reimpose lockdown restrictions, which would kill the still-nascent economic recovery.

The US corporate earnings season, scheduled to start this week, will reveal the true extent of the damage caused by the coronavirus outbreak in the months of April and May. In addition, investors will watch US inflation figures for June, due on Tuesday and the retail sales figure, due on Thursday.

Technical levels

The DXY is closing on the 200-week simple moving average (SMA) support, currently at 96.45. Sellers have failed to keep losses below that SMA line in four out of the last five weeks. As a result, acceptance below that long-term SMA line could bring in additional selling pressure, yielding a decline to a low of 94.65 seen in March. Alternatively, a strong bounce from the SMA, if followed by a move above 97.80 (June high), would confirm a double bottom breakout on the weekly chart.

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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