Price action recap
USD had been on a powerful bull run from the get go of 2021, after the beating encountered last year. At the closure of March the greenback posted its biggest quarterly gain since June 2018, hitting its highest in around five months via the Dollar Index (DXY).
Since the commence of trading for the new month, April, a heavy decline has so far been observed for the greenback. The move initially made sense somewhat from a technical perspective, needing to see a correction, following the very one-directional price action.
The USD Index is now trading down at the lowest levels seen in almost four weeks, having pulled back as much as 1.90% from the highs printed in March. The run north was looking so promising, so why the heavy pullback?
Johnson & Johnson (NYSE:JNJ) vaccine problems
It was reported on Tuesday that the United States health agencies (FDA and CDC) recommended that one-shot vaccines should be halted, following six cases of a rare but deadly blood clot disorder.
It has now somewhat dealt quite a blow for the government’s accelerated vaccination plans. The pace of the vaccine distribution across the country was at the time very assuring for the prospects of economic recovery and market player confidence in the greenback.
Over the past few weeks there had been much talk of the U.S. economy, in how there was more of an equilibrium with other major economies and if anything moving above and beyond peers. However, with vaccination issues, this now puts the U.S. economy a step back once again for now.
Technical Observations
The monthly candle via the DXY is looking set to produce a potential bearish engulfing candlestick. Weekly price action is moving within what can be viewed as a bearish flag structure/ascending channel, at risk of a breakout to the downside. The daily at the time of writing is breaking down the 38.2% Fibonacci area, a breach here could then invite another wave of selling pressure.
Should the bears maintain momentum, a test of the lower acting trend line of the flag structure could come into play. A breach would be catastrophic for USD, which would then allow some strong further buying momentum for its peers; EUR, GBP, AUD, NZD etc.