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Thursday, March 4, 2021

US dollar index bears prevail on vaccine and corporate deals

  • The US dollar index (DXY) declined today as investors reacted to a slew of news from the US and UK.
  • AstraZeneca and Pfizer had some positive news about their coronavirus vaccines.
  • Gilead acquired Immunomedics while Softbank sold Arm to Nvidia.

The US dollar index (DXY) is down by more than 0.30% as investors reflected on the latest coronavirus vaccine and corporate activities. The dollar has fallen by 0.60% against the British pound, 0.30% against the euro, and 0.25% against the Swiss franc.

US dollar index
US dollar index 12-month chart

Coronavirus vaccine hopes

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The US dollar index is falling after some positive news about a coronavirus vaccine. During the weekend, AstraZeneca announced that it had resumed clinical trials of its vaccine. That happened a few days after the company halted the trial after a volunteer suffered an unknown illness.

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At the same time, in the United States, Pfizer said that its vaccine will be ready by December this year. In a statement yesterday, the firm’s CEO said that the company will have key data about its vaccine by the end of October. The company is developing its vaccine in collaboration with BioNTech, a leading pharmaceutical firm from Germany.

A coronavirus vaccine would be negative for the US dollar index because it would remove the risk for holding other currencies. As shown in the chart above, the currency rose to its highest level in decades at the height of the pandemic. It then fell to a multi-year low when the risk of the virus abated.

Corporate actions

The US dollar index is also falling because of renewed corporate in the market as companies make a series of mergers and acquisitions. During the weekend, Softbank announced that it would sell its Arm business to Nvidia in a deal valued at more than $40 billion. That is a nice profit for Masayoshi Son, who bought the company four years ago for $36 billion.

In the United States, Gilead Pharmaceuticals announced that it would pay more than $21 billion for Immunomedics. The company is known for its breast cancer treatment therapy.

Earlier today, Bytendance, the owner of TikTok announced that it had reached an agreement with Oracle for its US operations. Oracle will provide the technology to the Chinese streaming giant.

At the same time, Caledonia, an Australian investment firm announced that it would acquire Scientific Games. The company provides gaming solutions to companies in the casino and gaming industries. As a result of all these, the major US indices rallied in the futures market.

The US dollar index is also declining ahead of an important interest rate decision by the Federal Reserve. The bank’s monetary policy committee will start its meeting tomorrow and deliver the decision on Wednesday.

US dollar index technical outlook

US dollar index
US dollar index technical chart

The daily chart shows that the US dollar index has fallen from Friday’s high of $93.73 to a low of $92.92. The price is below the 25-day and 50-day exponential moving averages. It is also below the important resistance level of $93.95, which was the highest level on August 3. At the same time, the Average True Range (ATR) indicator has dropped to the lowest level in months. Therefore, I suspect that bulls have not been able to defend the rally, which means that the price is likely to continue falling.

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