The USD Bound to Climbing Further, As the US Economy Reverses

The US Dollar has been bullish for the last two years. If you look at the DXY (USD index) below, you can see that it has been climbing since early 2018. It broke above all moving averages on the weekly chart and it seems now that those moving averages have turned into support. The 20 SMA (grey) and the 50 SMA (yellow) have been keeping the USD index up since September 2018.

The 20 and 50 SMAs are keeping the DXY supported

We did see a pullback lower during the Q4 of last year, as the US economy weakened and ISM manufacturing fell in contraction, increasing fears that manufacturing in the US was going to join the Chinese and European manufacturing, which have been in deep contraction for about a year. But, the 50 SMA held well as support and the index bounced off from there during these last two months.

Apart form the technical picture which points up for the DXY, fundamentals are another major reason for the USD to resume the bullish trend so far again this year. The data of the last two months, has shown some considerable improvement in the US economy.

As you can see from this month’s economic data from the US, most of the important numbers are green. Factory orders have been negative in the last four months of 2019 but they posted a nice jump of 1.8% for January. Services and ISM non-manufacturing improved as well and moving away from contraction, while jobs posted a major increase. The UoM consumer confidence jumped higher, as did the Empire State manufacturing index and the Philly FED manufacturing index.

ISM manufacturing also posted a 3.7 point jump, leaving behind contraction after 5 months there. So, manufacturing didn’t fall in recession in the US like in Europe. So, the economy is improving in the US, which should keep the USD bullish. Besides that, we have heard FED members sound less dovish, like Bullard who is a dove naturally. So, no more rate cuts from the FED, which should add more strength to the USD.