Common sense tells us that large-scale government stimulus and QE programs will inevitably lead to currency devaluation. However, amid the COVID-19 pandemic, the monetary powers-that-be have repeatedly cited deflation as their primary concern. After multi-trillion stimulus and FED lending packages, one has to wonder if the talking points are soon to change. If the decline in June USD Index futures is any indication, it looks like inflation may become a buzzword sooner rather than later.

Perhaps we will get a better idea of the state of the Greenback at next Wednesday’s FOMC Announcements. Currently, the CME FEDWatch Index is assigning only a 7.9% chance of a rate hike. Conversely, there is a 0% chance that interest rates will go negative. In contrast to the verbiage of last month, it looks like COVID-19 recovery expectations are growing by the day.

For now, June USD Index futures are showing significant weakness. Rates are below the 98.000 level and appear poised to extend the bear run south. From the standpoint of traders, it looks like the Greenback has lost its luster as a financial safe-haven.

June USD Index Futures Extend Three-Week Losses

Throughout the coronavirus panic, USD Index futures held firm around the 100.000 level. Now that the global economy is in the midst of reopening, rates are on the march south.

The June USD Index futures contract is preparing for expiration. Nonetheless, there are a few levels worth watching until that point:

• Resistance(1): Weekly SMA, 98.420
• Support(1): Psyche Level, 95.000
• Support(2): COVID-19 Low, 94.530

Overview: Next Wednesday’s FED Meeting is going to be an interesting engagement. While a policy move is a real longshot, dialogue on the economy, deflation, and future FED lending practices are going to take center stage. In reality, there’s a chance that Powell and the FOMC may express optimism over a forthcoming recovery. If the tone is positive, be on the lookout for USD Index futures to regain their swagger and break a three-week losing streak.