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US dollar and the market: Who will beat whom?

US dollar and the market: Who will beat whom?

The dynamics of the US dollar and the global market seem to be playing catch-up during the last few weeks. Apparently, these two are competing with each other. Now, who will beat whom in the financial field?

By the end of this month, most traders, investors and economists expect the dollar to decline. The national currency disappointed the markets at the end of spring, but a glimmer of hope for its recovery remains. It should be recalled that the USD showed significant growth in the first quarter of this year, but it is now exhausted. At the end of April, the dollar index seemed to be worned out, which could not get out of the downward spiral for the third week in a row.

According to estimates of economists surveyed by Bloomberg, the specified currency has fallen against 16 key currencies, except for the Japanese one over the past 12 months. Experts believe that it will continue to plunge against 11 of the 16 world currencies in the next 12 months, namely until March 30, 2022. This opinion is shared by the participants of the options market, since put-options on USD have risen in price against similar call-options for the past month. At the same time, bearish sentiment on the dollar dominates among investors. It can be recalled that the dynamics of option premiums reflect the balance of supply and demand, which are determined by investors' mood.

At the end of April 2021, major market players reduced their net position to buy contracts for the dollar index to 3.5 thousand. It can be noted that the reduction in the net position on the USDX fell from the levels that peaked at the beginning of June 2020. Throughout the previous week, the bullish index of major players (that is, the ratio of the number of contracts for purchase to the number of contracts for sale) declined to 1.17 from the previous 1.12. Large funds reduced purchases of USD by 7% during the reporting period, while increasing its sales. Experts warn that if this trend continues, this will lead to the dollar's collapse.

On the morning of April 26, the US dollar started with a decline. This is facilitated by the weakening of interest in the US currency as a protective asset and the rise of risk sentiment. The current risk appetite is pushing the dollar, which remains in an uncertain position. This morning, the EUR/USD pair was trading near the level of 1.2111, remaining in a downward trend. Analysts stated that the main currency pair is on its way to the high of 1.2350. Based on the technical analysis, reaching this level (61.8% correction) leads to sales up to 1.1705. Currently, the pair is dominated by bullish sentiment. According to current calculations, the bulls' nearest targets are the levels of 1.2167, 1.2183 and 1.2200.

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US dollar and the market: Who will beat whom?

Joe Biden's plan does not favor the US dollar.

At the end of last week, experts concluded that the tax plan of the US President Joe Biden brought down the markets. It is worth noting that the main purpose of the new taxation is capital gains in the United States. To finance social spending, the head of the White House intends to double the capital gains tax rate for individuals earning more than $1 million. The implementation of such a scenario will be a revolutionary step in the course of changes in the country's tax code. However, the noble impulse to reduce wealth inequality can cause several problems. Analysts believe that this will mainly lead to a decline in the USD and US assets.

Another goal of the presidential reform is to normalize public finances. Currently, US Treasuries have reacted positively to Joe Biden's initiative, as the risk of failed fiscal policy has faded on expectations of growth in government revenues. However, the attractiveness of US stock assets for foreign investors will decline in the mid-term planning range. In this case, the net effect for the dollar will remain negative.

Bloomberg experts said that two-thirds of market participants expect the US currency to decline and European and British currencies to further rise by the end of 2021. On another note, the Fed's meeting scheduled for Wednesday, April 28, should bring clarity to the dynamics of the USD In the near future. Experts expect the interest rate to remain near 0-0. 25% per annum and are waiting for new information about the future direction of monetary policy. A lot of market participants abandoned the dollar, but experts believe that this is too early. The US dollar is in between two directions, and we will know soon where it will go.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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