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December Lows In View For The USD Index

Posted Thursday, March 5, 2020 by
Shain Vernier • 2 min read

Rate-cut mania continues to hammer the USD as the coronavirus outbreak gains steam in the United States. Amid new American fatalities and several emergency declarations, traders are betting big on more quantitative easing from the FED. Unfortunately for March USD Index futures, the news is destroying market share and sending rates toward December 2019’s lows. 

On the traditional economic news front, U.S. employment is holding relatively strong. This morning’s numbers gave no real cause for alarm:

Event                                                           Actual          Projected        Previous

Challenger Job Cuts (Feb.)                        56.660K            NA                67.735K

Continuing Jobless Claims (Feb. 21)        1.729M           1.733M            1.722M

Initial Jobless Claims (Feb. 28)                 216K                  215K                219K

Given the onset of COVID-19, this set of figures is robust. Most economists and analysts expect U.S. Unemployment to rise above the key 4% benchmark in response to the outbreak. Today’s employment metrics suggest that the contrary may be true.

At this point, the traditional economic news isn’t impacting the markets. It’s all about FED rate cuts and the COVID-19 virus ― everything else is taking a backseat.

March USD Index Futures Plunge

For the eighth time in 10 sessions, March USD Index futures are getting blasted by sellers. Rates have once again fallen beneath 97.000 and are trending lower. Going into Friday, no one is sure when or where the bleeding will stop.

March USD Index Futures (DX), Daily Chart
March USD Index Futures (DX), Daily Chart

For the near future, there is one level on my radar in this market:

  • Support(1): December 2019 Lows, 96.020

Overview: The super-charged news cycle of the past few weeks has brought havoc to the USD Index. For now, buying in at any level is a challenge. However, a test of 96.020 should bring at least a modest bounce for short-term longs.

According to the CME FEDWatch Index, the markets are pricing in a 100% chance of intense rate cuts at the March 18 meeting. Currently, these figures sit at 69.6% for a ½ point cut and 30.4% for a ¼ point cut. In the event these projections materialize, the USD Index is likely headed much, much lower.

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