US Dollar Index tests 91.00 level for the first time since April 2018

• The US Dollar Index (DXY) has dropped to the 91.00 level for the first time since April 2018.
• Spurring recent downside has been a combination of vaccine and US fiscal stimulus optimism, as well as soft US jobs data.

The US Dollar Index has dropped to further lows in recent trade, briefly dipping below the 91.00 level for the first time since April 2018. DXY closed Wednesday FX trade with losses of slightly more than 30 points or slightly more than 0.3%.

USD bears still in control

A combination of US fiscal stimulus and vaccine optimism has once again weighed on the safe-haven US dollar on Wednesday. In terms of the latest vaccine news; CNN reported that the first US shipments of Pfizer and BioNTech’s vaccine will be made as early as 15 December and Moderna’s vaccine could be shipped as soon as 22 December, subject to the FDA’s decision on the vaccines on 10 December. In the UK, the Pfizer vaccine has already received approval and people will be receiving shots as early as next week.

Meanwhile, regarding US stimulus talks; Senate Republicans and Democrats are still some way apart on stimulus, the former group preferring a package of just under $500B and the latter a package of around $1.3T. However, the Democrats said that a bipartisan proposal, valued at $900B would serve as a good basis for negotiation, indicating (perhaps) a greater appetite for compromise than they showed prior to the election. Whether the Republicans will be willing to reciprocate when it comes to compromising is another thing.

The combination of mass vaccination increasingly seeming like a near-term reality and the market’s perception of the chances for more US fiscal stimulus soon rising, risk appetite was understandably stoked on Wednesday, with US equities nudging back towards all-time highs from Asia session lows.

Meanwhile, ADP National Employment data missed expectations, showing the US economy adding 307K jobs in November (consensus was for 410K of jobs gains), boding poorly for official the NFP number on Friday. This comes after ISM manufacturing data on Tuesday showed manufacturing sector employment in contraction in November. If NFP data on Friday does end up disappointing, this will likely be a USD negative as markets will assume this raises the likelihood that the Fed will deliver further stimulus (perhaps forward guidance on its asset purchase programme or adjustments to the composition of purchases). In the meantime, the ISM services PMI’s employment subindex will be closely watched on Thursday.

DXY eyes sub-91.00 support

Below the 91.00 level, the next key areas of support for the DXY are the March 2018 high at 90.94 and April 2018 high at 90.60, which both come in ahead of the round 90.50 and psychologically important 90.00 levels. Should the bulls regain some composure, resistance at the 1 September low at 91.75 will be the most important area to watch.