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James Hyerczyk

The U.S. Dollar plunged against a basket of major currencies on Monday after a report showed that U.S. services industry activity rebounded sharply in June, almost returning to its pre-COVID-19 pandemic levels. The better-than-expected report dampened the U.S. Dollar’s appeal as a safe-haven asset.

Meanwhile, the Euro, the most heavily weighted currency in the index, rose to a two-week high of 1.1345, supported by the positive sentiment about a revival in Chinese economic activity as well as strong data. German industrial goods production rose by 10.4% in May, rebounding from their biggest drop since records began in 1991 and the bloc’s retail sales figures rose above pre-coronavirus levels in some countries.

At 18:15 GMT, September U.S. Dollar Index futures are trading at 96.730, down 0.571 or -0.59%.

Daily September U.S. Dollar Index

Daily Swing Chart Technical Analysis

The main trend is up, but momentum has been trending lower since the formation of the closing price reversal top on June 30.

A trade through 97.810 signals a resumption of the uptrend. A move through 96.320 will change the main trend to down.

The short-term range is 95.570 to 97.810. Its 50% level at 96.690 is controlling the near-term direction of the index.

The intermediate range is 99.885 to 95.570. Its retracement zone at 97.730 to 98.240 is resistance. It stopped the rally at 97.810.


Short-Term Outlook

The U.S. Dollar is going to keep going down as long as the economic data keeps improving. Traders aren’t looking at the economy per se, they are shedding safe-haven buys that were initiated at the start of the coronavirus pandemic. So even though Treasury yields are rising, in this case, the higher rates are not going to make the dollar a more attractive investment.

The short-term direction of the September U.S. Dollar Index will be determined by trader reaction to the pivot at 96.690.

Furthermore, the rapidly rising COVID-19 will not become an issue unless they start to slow down economic growth. We’ll get a clue on Thursday as to how the economy is doing with the release of the Weekly Jobless Claims report. A surge in claims could send the dollar index right back up.

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