The USD staged a large rebound in the early part of the European session, after being very much tilted to the downside for the last few weeks.
Pressure on the greenback was initially being observed, on optimism that virus-induced fatalities in the world may be approaching a peak. The markets were seeing drops in cases in European hotspots; Spain, Italy, France and Germany. In addition to areas in the United States noticeable falling.
Speculators, as we noted in a prior blog, had been massively net short the dollar, which hit its highest since May 2018. Given this, there was a growing case being built up for a needed correction, perhaps a short-squeeze, as being seen today, Wednesday.
It is also important to note that it remains unclear whether economies will recover quickly or whether it might take longer than expected. Key data points moving forwards will start to provide these details. The global economy could be in fact heading for a very serious recession, but we are not going to know that until we start scrutinizing data moving forwards.
On Tuesday, the IMF in a report predicted that the coronavirus pandemic will spark the worst recession since the Great Depression in the 1930s.
Technical DXY overview
The DXY formed a bullish flag structure via the 4-hour chart view, as it was easing south. A breakout has been observed, inviting a fresh wave of buying pressure. (Check out our membership for full trade setups and ideas, with our fundamental analysis)
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