Last week we correctly predicted the DXY had the potential to increase. However, on Friday the U.S. Dollar Index began to show some cracks that may open it up to a resumption of the downtrend. The biggest fundamental issue is the stimulus in the U.S.
It is clear there will be stimulus. The question is when and how much? As traders, we are not sure it actually matters other than for the immediate short-term trade. The bottom line is that once it is passed, whether it be before or after the U.S. Election the long-term trend of a weaker U.S. Dollar looks to be the prevailing move. Therefore, we believe that any increase in the index and, by extension, in the USD denominated pairs should be traded with a Bearish DXY. This means that any decreases in AUD/USD, EUR/USD, GBP/USD and NZD/USD should be bought. The only way we would consider this analysis invalid is if the DXY makes a sustained move over the 96 handle.
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