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USD Index Futures Approach Yearly Lows

Posted Monday, July 20, 2020 by
Shain Vernier • 2 min read

Although it’s a slow day in financial news, the U.S. Senate is back in session and stimulus negotiations have begun. At this point, details are murky regarding another governmental cash injection into the American economy. However, Congressional Republican leaders are meeting with President Trump over the issue. One thing is for sure ― boosting the money supply by another $1 or $2 trillion won’t do September USD Index futures any favors.

As we roll deeper into Q3 2020, most market analysts agree that the massive US$3 trillion stimulus package from last spring has been effective. This is the key reason that Congress is considering the merits of another package. At the moment, here are a few new provisions being looked at:

  • Another round of direct payments of $1200 to individuals, with an extra $500 per child
  • $2000 per month of “Emergency Money” to qualifying parties until the pandemic ends
  • A $4000 temporary travel tax credit
  • A payroll tax cut designed to boost worker’s take-home pay

Rumour has it that President Trump favors the tax credit, payroll tax cut, and more direct payments. Of course, these benefits will be over and above the existing Payroll Protection Program (PPP).

So, what does it all mean? In short, it means that another large chunk of money is about to hit the U.S. economy. When coupled with FED QE, currency traders are betting that September USD Index futures will make fresh yearly lows.

Will USD Index Futures Test 2020’s Bottom? 

Since the epic mid-March rally to the cusp of 104.000, September USD Index futures have been bearish. Now, rates are holding just beneath 96.000 in a strong intermediate-term downtrend.

September USD Index Futures (DX), Weekly Chart
September USD Index Futures (DX), Weekly Chart

Overview: With Q3 underway, one has to wonder what is in store for the USD. The FED has repeatedly stated that they have no plans to deviate from QE until inflation hits the 2% level. While last week’s CPI figures show that inflation is growing, no one really knows when 2% will become a reality. 

Given the massive 90-day increase in the money supply, investors are expecting the Greenback to suffer over the intermediate-term. Until we test 2020’s lows, a short-side bias is appropriate for USD Index futures.

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