The US dollar had been sold off rather significantly during most of 2020. However, as the new year started, we consolidated around the 90 handle in the US Dollar Index. The area on the chart has been important before, as the start of 2018 formed an almost identical pattern. Just as we saw then, the recent move has been rather sharp.
The main driver lately has been rising yields in the bond markets, which suddenly makes the dollar much more attractive than other currencies. Remember, the bond markets can move most of the money in the markets. Think of it this way: If you had $100 million to stash somewhere, would you rather get charged 34 basis points to hold it in German bonds, or get a 1.65% yield from the US? It’s really that simple at this point, as the Euro is a majority of what makes up the US Dollar Index.
It is very unlikely that we will see any tightening in the EU anytime soon, as the coronavirus outbreak is starting to rage again.
Furthermore, the technicals are starting to turn in favor of the greenback on the US Dollar Index as well, as the MACD has seen a recent moving average crossover and a positive histogram form. The bounce from the obvious “big figure” of 90 makes a lot of sense at this point.