The US dollar basket (DXY) is nearing its recent multi-month high, supported by a safe haven bid as risk markets remain wary of the ongoing spread of the Delta COVID variant and the potential impact it may have on global growth. As governments across the globe continue to unwind lockdown measures, the Delta COVID variant is spreading rapidly, adding fuel to the opinion that the easing of lockdown measures may be happening too quickly. Any re-imposition of lockdown measures will weigh heavily on already weakened economies, crimping growth prospects in the months ahead. The US dollar is a major beneficiary of a risk-off environment, along with the Swiss Franc and the Japanese Yen, and while this remains the case the greenback should continue to edge higher.

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The US dollar remains underpinned by short-term channel support with the DXY now approaching its first major test of resistance, the March 31 high at 93.47. This level also cuts across channel resistance and may be difficult to break convincingly ahead of next Wednesday’s FOMC meeting. The CCI indicator shows the dollar is currently in overbought territory, suggesting a period of consolidation may be due, while the recent 50-/200-dsma crossover – golden cross – adds to the current bullish sentiment. It looks unlikely that the short-term bullish channel will be broken pre-FOMC, although Monday’s sharp risk sell-off should act as a warning that markets remain volatile as we head into the summer holiday lull.

US Dollar Basket (DXY) Daily Price Chart (November 2020 - July 21, 2021)

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