The US Dollar in 2021

Intermediate

The dollar index (DXY) has had a good start the first week of this year, compared to the abominable 2020. The COVID-19 pandemic has touched all financial markets and the mighty dollar felt the impact of it more than any other main currency. From my last article on March 12, 2020 DXY lost over 8%. However, this move lower was expected from the technical perspective as we shall investigate on the weekly chart below.

DXY Weekly

(Weekly DXY chart)

DXY Daily

(Daily DXY chart)

Technical Perspective

Price currently trading near the massive median support, that was a broken resistance from 2008-2009 period. It comes at a critical moment for USD as we are preparing for Biden to take charge after his inauguration on January 20. The Elliott Wave count is still holding and 2020 has seen the completion of a choppy channel in wave B, then the pandemic triggering wave C, which also followed in the 1-2-3-4-5 formation down. We are now near the completion of wave (II) in a grand cycle. Basically, telling us that the US dollar will soon find its bottom. Despite the strong support at the current level between 88 and 89 levels, there is still potential room to go lower on the wave count despite the last week’s candle close showing potential reversal. On the daily chart, we can see that there is potential to form a reverse pattern here before the next spike. Already the beginnings of a reverse Head and Shoulders pattern can be seen with divergence on an RSI. But ideally, in Elliott Wave count, we should see the price hit at least a 50% fib level. So, there is a real danger of bull traps. The weekly chart also shows a potential Death Cross formation with 50SMA crossing below the 200SMA. However, it is a very lagging indicator and may only be showing us the result of an already finished move.

Fundamental Perspective

The final year of Trump’s presidency created lots of problems for the USD. The whole wave (II) is showing us the results of his policies and general attitude as a president. In wave (II): wave a was his start of the trade war with China and continued guerrilla tactics with regards to foreign policies. Wave b showed his continued attempts to uplift the US dollar, resulting in a choppy upwards channel, reflecting his ‘success’ and continued stonewalling from the democrats that divided the USA from within. The final wave c is the pandemic that brought everything he tried to do to its knees and resulted in his defeat at the election. The fundamentals show a clear reflection on the chart, so we can assume that there is a high probability that Biden’s presidency will follow the chart as well.

As the new president, Biden has a lot to live up to. his priority will be to ensure the USA population, that voting for him was the right call. Since the economy and financial situation in the population is already on the breaking point and people could storm the Capitol building again, Biden will attempt to pacify the nation with new policies. Approving the stimulus checks could be a good start and has been a hot topic of the past few months. It could only be good for the US dollar and will provide a boost. Strengthening the US dollar could increase the purchasing power of the consumers to jumpstart the economy again. Weak USD serves no purpose for the US economy now. Last month’s inflation data showed some promise but is unreliable until the pandemic resolution is reached, and business continues as usual. The Central Banks continuously argue over the tapering the $120 billion per month bond-buying programme, but realistically, they have no choice but to continue. Overall, things look bleak, so a strong USD could improve the general economic condition for consumers.

Investors could also see USD as bullish for the coming year due to Europe suffering the most from the pandemic this winter. Countries like the UK, Germany and Italy were forced into massive lockdowns until spring. And though Brexit was ‘seemingly’ resolved, the economies of the continent will continue to take a beating until at least mid-March or April. Warmer weather should relieve some of the pressure from the pandemic and there is hope that the vaccines will be improved, and the population protected from the virus.

Editor

Anton is an accomplished Director at Markom Development Ltd where he combines cross functional competencies in staff management, operations planning, customer retention and strategy development. BU... Continued

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