What will it mean for the US Dollar if Senate passes extra stimulus? DXY, EUR/USD

If the bill is passed, the US Dollar should continue to weaken

FOREX 7

On Monday evening in the US,  the US House of Representatives passed a revised coronavirus stimulus package which would give $2,000 in direct aid to eligible Americans, rather than the $600 which was passed in the original package, by a vote of 275-134.  This comes after President Trump blasted the original package for providing too much to foreign states, lobbyists, and special interest groups.  The vote now goes to the Republican controlled Senate, which is threatening to veto the bill.  Republicans have been looking for a lower payout in direct aid since day 1.  (Who would have ever guessed we would see Donald Trump and Bernie Sanders on the same page in stimulus!!).

DXY

If the bill is passed, the US Dollar should continue to weaken while stocks continue to rise.  More supply of funds for Americans to spend equals a lower price for the US Dollar.  DXY is currently trading in a support zone from the spring of 2018 between 89.00 and 91.00.  In addition, the US Dollar index is near the 161.8% Fibonacci extension from the September 2nd lows to the September 25th highs, near 90.00. It also broke through the apex of a near-term symmetrical triangle, while the RSI is diverging with price in the longer-term.

Source: Tradingview, City Index

If the Senate passes the bill, price could close below the apex of the triangle and the 161.8% Fibonacci extension at 90.00, and then easily run down to the lower end of the support range near 89.00.  If the Senate reject the $2000 proposal in extra aid, it will remain at the current $600 and DXY will likely move higher.  Resistance is at the top of the symmetrical triangle near 90.37, horizontal resistance near 90.66 and the top of the support zone near 91.00.

EUR/USD

We discussed the EUR/USD in the currency pair of the week.  The pair is currently sitting near a confluence of resistance near horizontal resistance and the 161.8% Fibonacci extension form the September 1st lows to the November 1st highs near 1.2255.  If the $2000 in direct aid gets passed by the Senate, traders can expect the US Dollar to weaken and, therefore, EUR/USD to move higher.  On a weekly timeframe, the next significant area of resistance is the highs from the week of February 2017 near 1.2555. 

Source: Tradingview, City Index

If the bill fails to pass the Senate and direct aid remains at $600, EUR/USD may move lower.  Near-term trendline support is at 1.2200, then a series of spike lows at 1.2120, follows by support at 1.2060 and then September highs near 1.2011.

Source: Tradingview, City Index

Many of the US Dollar pairs are likely to move in a similar fashion if the $2000 in direct aid is passed (ie, weaker US Dollar).  Traders should be extra careful into year end as liquidity and volume is likely to dry up further.

Learn more about forex trading opportunities.



Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.