DXY stationary on FOMC minutes, needs to hold above 93.40

The Federal Open Market Committee Minutes had little impact on the US dollar which is more concerned for US stimulus-related market action.

• FOMC Minutes: Recovery faster than expected from its depressed second Q2 level

Its been a wild ride in the markets this week so far which have all be down to the sentiment relating to the US stimulus talks.  

US President Donald Trump, fresh from a hospital stay to treat his COVID-19 infection, tweeted yesterday that he was putting a stop to the fiscal relief.

Markets panicked and the dollar rallied.

However, the president then reversed course and said that he would support the $1,200 national stimulus checks, give support for the airlines and new small-business relief programs.

It is a very confusing situation for traders trading the news and market sentiment, especially due to the uncertainty around the US elections and all what a result, either way, could mean for the immediate future. 

Vol is here to stay

However, one thing is clear. Until there is a victory, one way or the other, volatility is here to stay. 

The US dollar tends to thrive in volatility because such currencies, such as the euro, are hit at times of risk-off.  

We saw this yesterday: 

The VIX, today, is down 4%, but yesterday it was up by some 8%. 

The US dollar is, therefore, negatively correlated to the VIX considering its gains yesterday and losses today. 

Until there is a clear outcome from the elections, the stock market is bound to be vulnerable to swings which should play into the hands of the US dollar bulls. 

Traditionally, the dollar has a track record of not doing so well leading into the elections, but these are unprecedented times.

The coronavirus, trade wars, fiscal stimulus and the Fed are the main drivers during this election.

Analysts at Rabobank explained that a Blue Wave would lead to a more substantial fiscal stimulus package that could support optimism about world growth and boost risk appetite.

Key comments

''This environment may on first sight soften the USD though in the medium term downside could be limited by the coincident assumption that a large fiscal stimulus plan could remove pressure for increased monetary policy stimulus from the Fed.''

''The impact of these factors on asset prices will also be dependent on the course of COVID-19 through the globe and by its associated economic restrictions.''

''The current rise in the number of cases as the Northern Hemisphere faces its winter suggests that risk appetite could be contained in the coming months irrespective of the election outcome.''

DXY technical analysis

In the analysis from the end of last week, DXY Price Analysis: EM-FX/DXY could be a tell-tale sign of things to come, a case was made for a higher dollar.

The chart above offers a scenario that complexes a 5-Wave analysis:

The chart below is a longer-term view based on a bullish reverse head and shoulders pattern.

Meanwhile, bulls need the 93.40/50s to hold with the price stationed outside of the channel.