The dollar has fallen from grace from the peak of the Coronavirus. The dollar index is down 10% from its yearly high in March, where traders and investors went to cash.
However, with two strong positive results from two vaccine makers Pfizer and Moderns with their 90% efficacy with their vaccine trial, solid news on when we will get a vaccine will solidify a bull trend and a rotation into value and cyclical stocks.
Calvin Tse from Citigroup wrote in a report, “Vaccine distribution we believe will check off all of our bear market signposts, allowing the dollar to follow a similar path to that it experienced from the early to mid 2000’s.”
We can see that the US dollar has played well around the Fibonacci levels from April 2018 to its high early this year. It is currently sitting at the 78.6 % retracement, looking for targets at the 100% retracement and 168.1%., a full 20% drop.
As we saw at the start of the year, the rally was on extreme risk-off sentiment. Therefore, history suggests that we will only see a strong spike in the US dollar if there is risk-off sentiment, which is unlikely. We should also see some strength in the US dollar once the Federal reserve lifts quantitative easing.
Tse further stated, “There is plenty of reason to be optimistic” on the vaccine, and that the distribution “will catalyze the next leg lower in the structural USD downtrend we expect.”
Mark McCormick, global head of FX strategy at TD Securities stated that "It's likely, short term, [that] the US dollar trades lower on the easing of geopolitical uncertainty", citing that Biden is likely to back away from Donald Trump's confrontational and "America First" trade policy.
What are your thoughts on the US Dollar?