US Dollar weakens as investors’ crave risk

by Jun 3, 2020Market Reviews

US Dollar weakens as investors’ appetite for risk increases

The US Dollar index weakens for the 7th straight day as investors’ appetite for risk increases. The AUD/USD has broken the 0.69 mark, with the USD weaker against its G10 currencies, with global indices rising on forward optimism on a quicker recovery from the effects of the Coronavirus. US Indices have seemed to quickly discount the effects of the protests as they continue for the 8th straight day.

It is interesting to note how strong expectations and consensus have been on the market. It seems to have some binary optimism-o-meter, where the market is like “okay if my optimism-o-meter is above 1, markets rise.” Markets, in general, tend to be forward-thinking. However, as of late, future optimism has been trumping future imminent damage. It has taken much imminent danger to earnings to change the market consensus drastically but has only required a little to brighten up the markets’ spirits. It kind of reminds me of this video – US Indices only plummeted when push finally came to shove, when the Coronavirus was on the mainland. But indices are up, on earnings expectations months, even years down the line.


Around mid March was when the bulls boat hit the cliff


Fundamentally, the demand for the US Dollar is slowing down

Fortunately, fundamental signs are supporting the depreciation of the US Dollar. China’s manufacturing sector has seen an increase in appetite for Iron from Australia, Oil breaching $40 showing demand picking up, and institutional and retail investors after being taught to buy the dip, have been buying the dip. However, as from my article yesterday, there has been this massive disconnect between Wall Street and main street. It almost seems like every time an event happens, which would typically fuel a risk-off rally, the market seems to reset their time horizon further. However, if we ignore the Coronavirus and protests, economic data is still abysmal.

  • The consumer, constantly noted as the ‘backbone of the US economy”, is currently living on government programs and credit
  • ADP Employment and Non-Farm Payroll (NFP) are set to print better numbers but still will be relatively weak
  • Businesses will realize that they don’t need many employees – can run leaner


Some still believe in a “V-shape” recovery, weakening the US Dollar

Mark Mobius, co-founder at Mobius Capital partners, still expects a V-shape recovery, pointing to the market moves as an indicator to future gains. He is bullish on further employment recovery, predicting that the US Government will implement fiscal stimulus in the form of infrastructure spending in order to give many Americans work.

It would be wise to keep some dry powder for a potential second wave when keeping the US market in mind or investing in countries with a better Coronavirus outlook. Investor’s temperament must stay in check while seeing markets slowly tick up – the possibility of a second wave was highly likely in the United States before the protests, now they might just be adding fuel to the fire. It may be tempting to buy companies at an all-time high. But before you press that buy button, remember this video and remind yourself how the markets have been in the past couple of months.

Anish Lal has a great video on the weakening of the US Dollar against the Euro. You can watch it here.

Related Posts

What is technical analysis?

Technical analysis is a type of analysis derived purely from charts and the price movement of the security. The basis of technical analysis is that past price movement is a good indicator for future price movement. Technical analysis uses statistical trends such as trading volume and historical support / resistance levels to gauge the movement of the price in the future. This in contrast to fundamental analysis, which involves looking at a security from a financial and economic point of view.

read more

Black Bull Group Limited (trading name: BlackBull Markets) is a New Zealand registered and incorporated company (company number: 5463921). We are also registered with the Financial Services Provider Register (number: FSP403326).

Black Bull Group UK Limited is registered in United Kingdom, Company Number - 9556804. Payment clearing services provided by: BlackBull Group UK Limited (Company Number - 9556804) Address - 483 Green Lanes, London, Greater London, United Kingdom, N13 48S

Risk Warning: Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange, you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and, therefore, you should not invest money you cannot afford to lose. You should make yourself aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any questions or concerns as to how a loss would affect your lifestyle.

Copyright © 2020 Black Bull Group Limited. All Rights Reserved.

Share This