The U.S. Senate and White House finally reached a bi-partisan fiscal stimulus deal worth an estimated $2 trillion. The deal was reached at roughly 1 a.m. ET, though traders have been expecting the agreement all day yesterday, as the DJIA rallied over 11% in its largest one day move since 1933.
As global stock markets caught up to yesterday's closed in the U.S., the U.S. dollar began to pull back. However, on a 240-minute the DXY has already been consolidating in a pennant formation since reaching the 161.8% Fibonacci extension from the highs in mid-February to the lows on March 9. The consolidation is near a trendline dating back to May 2018. If the DXY does break higher from here, the target is near 109.80.
EUR/USD often trades the inverse to the DXY, as the Euro makes up almost 58% of the U.S. Dollar Index. So, it would make sense to see a similar, opposite move in EUR/USD. On a 240-minute price action in the EUR/USD has been moving lower since the highs on Feb. 20, stalled on March 20, and began consolidating in a flag-like formation. This, too, seems as it's ready for its next move. If price does break lower out of the flag formation, the current target is near parity (1.0050). (EUR/USD can still move higher, as high as 1.1070 and still be in a valid flag formation, just note that from wherever price breaks lower from the flag, the flagpole needs to be adjusted to that breakdown point.)
On a daily GBP/USD chart we can the U.S. dollar pair is trading in a resistance zone, just below 1.2000. If price holds below this key psychological resistance area and pulls back, it would provide more evidence that the DXY can move higher.
The set-ups and resistance in these U.S. dollar pairs provide evidence that DXY may be headed higher. We have seen an extreme move off the lows on March 9, from 94.60 to roughly 103. It’s hard to imagine we could see a move like that again soon. But then again, the way these markets have been moving over the last month, it is possible.