US Dollar building a base?

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While it is widely known that a lot of analysts believe the US dollar is doomed, something odd has been happening – it has decided to try to support itself.

When you look at the chart, there is a strong uptrend line going back to the early part of 2011. This trend line has so far held, and why wouldn’t it? After all, there is still massive demand for US Treasuries, even though the yields have risen lately. The dealers have been jumping in and buying bonds at auction – mainly because they expect demand to continue rising over time. They would not be buying these bonds if they thought there would be less demand. If you are going to buy US paper, you are going to need US dollars.

Furthermore, Covid-19 is causing issues in the EU again. If the Euro continues to lose a bit of strength, this will naturally have people running towards the greenback. On the chart, it looks as if the 92 handle for DXY is crucial. The recent action has shown a proclivity for the USD to stay above it, and perhaps to go looking towards the 94 handle, followed by the 96 level after that. While the US dollar has lost strength lately, the reports of its demise are still premature. I believe that the USD is looking to form a base, perhaps waiting out the election in the US.

US Dollar Index weekly chart
US Dollar Index weekly chart

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