What lies ahead for the US dollar in 2021
Tony Sycamore December 23, 2020 5:15 PM
We would like to take this opportunity to wish all our readers and their families a safe and happy holiday period. As markets are expected to remain volatile into the Georgia Senate run-off on the 5th of January, regular updates will resume next week, the 28th of December.
This brings us to the subject of this week’s volatility in the US dollar and what lies ahead for the greenback in 2021.
Since November, the US dollar index, the DXY has fallen almost 5% from peak to trough and has proved to be one of those rare occasions when a widely held consensus trade in FX has done as expected, when expected.
This week, in response to ongoing Brexit anxieties, the emergence of a new UK strain of Covid19, and suggestions the $900bn US fiscal stimulus package was already priced into risk assets, traders have moved to reduce risk ahead of the illiquid Christmas holiday trading period. This has included booking profits on US dollar shorts.
Nonetheless, the subsequent rebound in the US dollar is not viewed as a change of trend. Instead, it is viewed as a correction and once the current correction is complete, the downtrend is expected to resume.
The decline will be a function of the US dollar's status as a “counter-cyclical” currency. This means as unprecedented fiscal and monetary stimulus supports global growth into 2021 and outlasts near term uncertainties, the US dollar is likely to decline.
Technically, the current rebound in the US dollar index is expected to encounter a wall of resistance between 91.25 and 91.75. If reached, these levels would be looked at closely for a selling opportunity, before a retest and break of the February 2018, 88.25 low.
Keeping in mind, only a sustained break above medium term resistance 92.00/20 would negate the downside risks and warrant a more neutral stance.
Source Tradingview. The figures stated areas of the 23rd of December 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.