The USD index is currently ranging in between 90.0 and 93.0 and has been for the past six months. Moving forward, the adequate economic data coming from the US should help the weak Dollar regain some of its status, but not a ton. I expect the range to narrow, with the 91.5 level serving as a new support level.
Here's an interesting juxtaposition. There are currently just over 25 Million Currently Infected Patients of Covid-19, with 2.4 million deaths*. However,
The point is, main street continues to grapple with the Coronavirus. However, if you were looking at the financial markets, you would've thought we were in one of the largest economic expansions in history.
So much so, Warren Buffet's favourite indicator is flashing signs of mania. Currently, the U.S equity market cap is more than double the GDP of the United States. The last time this happened was during the bubble of the 2000s.
That is a long, convoluted, and somewhat poor segue to the main point of this article. A lot has happened in the past couple of days, with many asset classes at significant highs during one of the worst pandemics in history – here's an article to summarize them.
As vaccinations pick up in the United Kingdom, alongside lockdown restrictions starting to show results in lower cases and deaths, investors have been flocking the pound as optimism for the United Kingdom's economy. It is important to note that 1.45 was the bid before Brexit was announced in 2015, making it a ripe target for bulls to take.
Vaccines have played a considerable part in the strengthening in confidence in the United Kingdom, helped by the fact that they did not join the European Union's vaccine effort. This enabled them to approve and administer vaccines at a faster rate than their European counterparts.
Nearing the same time last year, we had an unprecedented event occur – traders saw the price of WTI Crude Oil on their terminals go negative. A year of supply cuts, recovering demand, and recently a rise in tensions in the middle east has pushed the black Gold back to pre-pandemic levels.
After an influx of institutional attention dawning upon the digital currency, including the likes from Mastercard, JP Morgan, Morgan Stanley, and of course, Tesla, Bitcoin has reunited with bulls taking the price up to just under $50,000 per Bitcoin. To note, Around the end of November last year, we saw Bitcoin at around $20,000.
The S&P 500 has closed at an all-time high, touching 3,950 in futures trading. The index is up 7% year to date. If we lived in an ordinary world, all-time highs in the equity markets would be the headline of the day.
However, it seems like stocks are too boring nowadays, and everyone wants to know which altcoin is next to return 1000x. However, many companies in the index are producing blowout or at least better than expected earnings. Considering the macro-environment we are currently living in, is quite an achievement.
I had concerns about the notion that investors were considering Gold's valuation – not something you want to be talked about in a safe-haven asset. I believe a safe-haven asset should be there to ballast your portfolio in times of risk-off periods, meaning investors should be able to flock to it / rely on it to hold their portfolio in steady shape.
Gold's steady decline eases my concerns, with Gold trading at around $1,816 an ounce, way off its $2,000 highs. We can see a continuation of the trend should see prices around the $1,700 - $1,750 level.
Markets are frothy – stay safe, and trade safe.
*For you tinfoil hats-wearers out there, I will entertain you by including the fact that there are up to 650,000 deaths due to the flu each year. Take that what you will
The Dollar Index (DXY) has been positive going into 2021, returning just under 2% year to date. Goldman Sachs. With Goldman Sachs and other large institutions touting their bearish views due to Joe Biden’s stimulus, low-interest rates and an appetite for Gold, the recent strength in the dollar has tested their analysis.
However, with Morgan Stanley abandoning their calls for a weaker greenback, with Matthew Hornbach stating that “It’s no longer attractive to be positioned for a weaker dollar from here given the uncertainties around the fiscal policy outlook, the monetary policy outlook, and the growth and inflation outlook,” are we seeing a turn in consensus?
Analysts are looking at the pace of vaccinations in the United States and worldwide, with predictions being made that a return to normal may be sooner than we think, especially when financial markets and economic policy are concerned. Federal Reserve minutes suggest that a possibility of talks regarding the normalization of monetary policy can start as early as June.
A quicker and more robust recovery may mean Republicans may have a leg to stand regarding a lower stimulus figure. Later this week ahead, we will see the non-farm payroll numbers for January. A higher-than-expected figure may suggest that the American recovery is faster than expected, and a lower stimulus figure from the 1.9 Trillion headline figure suggests. Lower than expected stimulus should put less downwards pressure on the supply side of the U.S Dollar.
With both the U.S Dollar and the Swiss Franc being relative currency safe havens, relative strength in one will bode strong movements in the other. The U.S Dollar has appreciated over 2% year to date, with Morgan Stanley analysts suggesting to short the Swiss Franc against the Canadian dollar while waiting on signs to turn bullish on the U.S dollar.
EUR/USD hit 1.20 on the last trading day before bouncing off the strong psychological resistance level. This is due to further dollar weakness alongside investors pricing in aggressive quantitative easing from the Fed outpacing the European Central bank. The EUR/USD is up around 2.3% this month.
Moderna is reported to seek expedited vaccine clearance for its Coronavirus vaccine in the United States and Europe after it was shown that its Vaccine was highly effective in preventing covid-19 with no serious safety problems. It is stated that Moderna will apply for an emergency use authorization in the United States and Conditional marketing authorization in Europe. However, the US FDA still needs to scrutinize the data in a public meeting on December 17th, making a vaccine available to the public before the end of the year unlikely.
As stated above, investors are pricing in that the Federal Reserve will outperform the European Central Bank regarding stimulus in the long term. So far, the ECB’s 1.8 Trillion Euros support for the European economy is slightly less than the Federal Reserve’s 3.2 Trillion Dollar support for the American Economy.
There are hints that the Federal Reserve will ease up on the quantitative easing, with Fed officials stating that they are planning to provide more guidance on their bond-buying strategy “fairly soon” and that “Many participants judged that the committee might want to enhance its guidance for asset purchases fairly soon,” according to the meeting minutes published by the Fed earlier in November.
In a rare occurrence, current Treasury Secretary Steven Mnuchin’s announcement that he would allow certain central bank emergency lending facilities to expire at the end of the year and that the Funds backing the program to be returned to the Treasury was met with criticism by Jerome Powell, which did not agree.
However, the ECB is not done yet. With most of Europe still under lockdown, many analysts predict their bond purchase program to be extended in December, with some analysts predicting that they will push for more stimulus.
Macro Valli, head of macro research at UniCredit, stated that “A boost and extension of the Pandemic Emergency Purchase Program (PEPP) is now a done deal, and we also see a high likelihood that the current favorable terms of the Targeted longer-term-financing operations (TLTRO)… will be extended.”
The last factor, Brexit, is slowly chugging along, taking into account the state the UK and Europe are currently in regarding the Coronavirus. Brexit officials stated that Fishing rights are the last Brexit obstacle that is yet to be figured out.
Angela Markel noted that time was running very short of reaching a deal, and some EU member states are growing impatient. “Some member states are now becoming unsettled. There’s not much time left. We hope that these talks will come to a happy ending. We don’t need an agreement at any price. We want one but otherwise, we’ll take measures that are necessary. In any. Case a deal is in the interest of all.”
Tick all the boxes regarding Brexit, the Vaccine, and the Quantitative easing, and we should see the EUR/USD blast past 1.20.
The Pound against the US Dollar is currently one of the most exciting pairs to be keeping an eye on, as it is essentially fighting between a rock and a hard place. Currently ranging just under 1.30, both nations have events coming up that will significantly shift the currency pair in either direction.
In the UK, we have Brexit negotiations affecting the Pound side of the equation. After the 30th of September passed, the UK is trying to buy time due to the worsening of the Coronavirus in Britain. There is pressure mounting onto Prime Minister Boris Johnson to ensure a deal goes through to avoid a compounding economic and human loss that a no-deal Brexit and terrible Coronavirus conditions bring to the UK.
According to a CNN Business analysis based on Citi and the Institute for Fiscal Studies forecasts, a no-deal Brexit could cost the UK economy $25 billion next year. Laurence Boone, Chief Economist at the Organization for Economic Cooperation and Development, stated that "The Combination of Covid-19 and the exit from the EU single market makes the UK outlook exceptionally uncertain" and that "actions taken to address the pandemic and decisions made on future trading relationships will have a lasting impact on the United Kingdom's economic trajectory for years to come."
The election is heating up with current polls across the Ditch, showing Biden taking a double-digit lead over Trump, with Joe Biden polling at 54%, and Trump polling at 43%. Biden seems to have the advantage over Black, Latinos, Whites with a college degree, and young voters. Conversely, Trump's strongest group continues to be White Evangelical Christians, rural voters, and whites without college degrees.
However, for both, the Coronavirus continues to run rampant. Unfortunately, investors and traders assume that America has given up on the Coronavirus and is learning to live with the virus. They can't get a second wave since they have not finished their first yet. Therefore, a second partial lockdown in the UK in response to the second wave has weighed on the Pound stronger than the US's long first wave.
As for the pair, a Biden Victoria plus positive Brexit talks should push the Pound higher, and the US dollar strengthens, moving past that strong 1.30 mark. However, a Trump win and further deterioration of Brexit talks should see the Pound weaken, and the US dollar strengthens.
A revival of the Dollar? As we get closer to the election, investors and traders can see one thing in the future – uncertainty. Therefore, we can see market participants start preparing for the unknown.
As debates and the election come up, statements will be said, and policies will be announced to sway the markets significantly. Over the past five days, the Dollar index has rallied 1.28%. The demand for the Dollar may be pointed to investors and traders building up a cash position in their portfolios for two mains reasons
• To take advantage of significant markets swings; and/or
• Want to hedge against market slumps
Many institutional firms are backing the recent rally in the Dollar. Franseca Fonsari, head of currency solutions at Insight Investment, pointed to the election having the "potential to be a significant market mover" and that it would "probably [be] wise" to run lower levels of risk.
Furthermore, Shahab Jalinoos, Head of Currency Strategy at Credit Suisse, echoed Fonsari's comments. He stated that the U.S. election is a key risk that his team considers in predicting a stronger dollar. It is important to note, Shahab has been a bear for the U.S. dollar near the start of August – a point in the dollar decline where it had already depreciated around 7%.
Another currency strategist at Bank of America, Ben Randoll, also pointed to the "substantial economic and event risks ahead" and that he expects a "dollar rally into the election and possibly beyond."
As you can see – analysts are quick to turn their opinion around on a recent turn of event. All three analysts point to the election being a catalyst for the U.S. dollar while remaining bearish viewpoints before the rally. However, it has been clear for quite some time now that the election will be upcoming. Therefore, this is an excellent example of constructing your own analysis and validifying that analysis using technical and fundamental analysis. It's obvious to call a bull run when you're already in one.
I talked about the Dollar earlier this month, and how long term trends such as Inflation, Federal Reserve's Q.E., low-interest rates, and Gold's rise are headwinds pushing the Dollar further downwards. I stated that "Investors [and traders] do not want to hold it" – which I still believe is the long term trend. Future markets show this – showing that most investors and traders are still not betting on the Dollar rallying on the back of a "save haven" trade. Furthermore, put options on the Bloomberg Dollar spot index are still net short, showing a bear consensus.
Uncertainty is coming – stay safe, trade safe.
We've recently talked about the potential demise of the U.S. Dollar. What currency is poised to benefit the most from the devaluation of the dollar? Euro is the first thing that comes to mind.
Shortly after the safe-haven trade that pushed the dollar up against major currencies, the Euro started to rally over the U.S. dollar. After strongly piercing through 1.10, a relatively strong downtrend alongside piercing 1.15 with relative strength, It is eyeing up a similar push up on these factors.
Pointed above, we can see that the push past 1.10 – 1.11 broke a 2-year downtrend for the Euro. Furthermore, we can see a similar pattern where the Euro against the US Dollar consolidates for about two weeks before making a push upwards, usually on the back of positive data coming from Europe alongside harmful data coming from the United States. It shows that bulls are most likely just looking for any excuse to push the pair higher.
This is quite unlikely ever to happen, as many commodities such as Gold and Oil are settled using the U.S. dollar. Nevertheless, the current headwinds pushing the U.S. Dollar downwards have been giving the world's second reserve currency a time to shine.
The United States has consistently been posting 200,000+ new daily recorded Coronavirus cases, with the government doing little to nothing to prevent the further spread of the Coronavirus. Meanwhile, Europe has attempted to restrict the virus's spread by imposing mandatory lockdowns in many countries. However, their reopening may be too early as we can see a resurgence in many countries in Europe. However, there is still a stark difference in how the governments have come together to fight the virus, and this may prove to be a game-changer in the long term for the Euro.
The U.S. Dollar is suffering strong headwinds due to inflation concerns, quantitative easing, and general risk-on sentiment in the markets. This may also signal a slow shift in European bonds and equities, with U.S. investors looking elsewhere for yield.
Considering the U.S. dollar's headwinds alongside recent strength in the Euro, it is likely we may see the Euro blow past 1.20 against the U.S. dollar on any positive news regarding Europe.