The nature of the US currency's downward turn in the last two sessions was quite convincing and created the prerequisites for a further downward movement. The superiority of the dollar "bears" is obvious. The recent increase seems to have been not a change in trend, but just a temporary respite in the further fall of the US currency against its main competitors.
The dollar index turned down at 61.8% of the momentum seen in September-November. Major players used the recent growth of the US dollar for their own purposes. Got time to prepare for the next assault.
Another stage of confirmation of the further fall of the dollar index looks like a failure under the line of the 50-day average, which passes through the mark of 90.50. Judging by the movement of the euro, the downward trend in the dollar has already begun.
These are the first steps of the dollar to resume the downward trend. The signal for a new round of decline will be a break down of the 90.00 mark.
The dollar's shorts are shrinking, and with it the belief that the dollar will rise in the short term is weakening.
"It is too early to talk about the end of the dollar's growth, but our belief that there is a potential for a further rise in the US dollar in the short term has decreased," Wells Fargo strategists comment.
The outpacing performance of high-beta currencies (Australian dollar and Norwegian krone), as well as the lagging dynamics of the yen and the euro, suggest that the recent rise of the dollar was nothing more than a positioning adjustment. Previously, the version of avoiding risk in favor of protective assets was assumed, but it did not materialize.
Analysts have noted that if currencies with a high beta coefficient continue to outperform, despite the obstacles, the potential for growth of the dollar can be forgotten.
In contrast to the dollar index, the EUR/USD pair lost more than half of its growth in the period from September to January in the correction. However, last Friday, a bullish takeover pattern on the chart was visible. Buyers of the euro were attracted by the unconvincing collapse of the main pair under the level of 1.20. The same dip also showed that the psychologically important 1.20 level migrated to support from the resistance category.
The growth of the EUR/USD quotes allows one to count on the surplus of dollar liquidity in the banking system. In both financial centers (London and New York), interbank dollar rates are reduced. In London, the historical minimum for the benchmark three-month Libor rate was again updated.
Testing the 1.22 mark is the first test of the hypothesis in favor of the euro's growth.
Not everyone adheres to the strategy of further decline of the dollar and growth of the euro. The opposite opinion is expressed by Bank of America, which lowers its forecasts for the euro-dollar exchange rate. The upward trend of the dollar will begin earlier than expected, the investment bank is convinced. The EUR/USD pair will fall to 1.15 by the end of the year and will remain at these levels until the end of 2022. It is worth noting that earlier they talked about the growth of the pair to 1.25, that is, their forecast changed by exactly ten figures.
BofA analysts are also confident that the EUR/USD rate will fall this year, which will happen for a number of reasons. In particular, the monetary policy of the world's main central banks was named. The Fed, in their opinion, will begin to tighten policy, and the ECB will continue to adhere to the ultra-liberal monetary policy.
The fact that the US economy will recover from the effects of the pandemic faster than Europe is an important aspect.