15.01.202117:32 Forex Analysis & Reviews: EUR/USD: Dollar may slowly regain losses as Biden promises to flood economy with money

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Exchange Rates 15.01.2021 analysis

Investors seem to have put the USD bearish trend on pause.

The greenback is showing its biggest weekly gain since November last year, and its recent recovery from three-year lows calls into question the prospects of its weakening in 2021.

"While the baseline scenario continues to be a significant acceleration in the global economy, which has historically been positive for most currencies against the US dollar, there is now reason to discuss whether the dollar will be as weak as many expect," said strategists at Westpac.

US Federal Reserve Chair Jerome Powell said on Thursday that the regulator remains committed to an ultra-soft monetary policy. Powell's promise to print money and keep interest rates low for as long as necessary has sent the dollar tumbling for a while.

However, the greenback recovered quite quickly after the recently elected US President Joe Biden presented a draft of measures to support the national economy affected by the COVID-19 pandemic.

The measures announced include $415 billion to fight the coronavirus and vaccinate the population, about $1 trillion in direct assistance to households, and $440 billion for small businesses and communities most affected by the pandemic.

"We must act and act now," said President-elect Joe Biden.

Investors were happy about the possible adoption of a stimulus package worth $1.9 trillion, but US stocks retreated amid the announcement of details of how the new US administration intends to stimulate the national economy.

The main problem, experts say, is that it will be difficult for Democrats to take all measures given the fragile majority in both houses of Congress.

"The reality is that while Democrats have now increased their power by winning Georgia's runoff last week, that power has its limits, and details of the fiscal stimulus package unveiled on Thursday suggest the overall size will be cut before it will receive the support needed to get through the Senate," said MUFG.

Exchange Rates 15.01.2021 analysis

Market sentiment took a turn for the worse when Joe Biden hinted at a tax hike, saying that everyone should pay their fair share. The falling stocks boosted demand for the safe dollar.

"Let's see how quickly the market will return to positive dynamics and what will happen after the inauguration of Joe Biden, because protest demonstrations are scheduled in the United States this weekend. There is a risk of serious riots - both on these days and on the day of the inauguration itself on January 20. Although the downward trend in USD is still strong, we are not ready to return to it tactically," Saxo Bank said.

The greenback will continue to rise on Friday. It is currently trading more than 0.5% higher at 90.7 points.

Risk appetite has been worsened by reports that the outgoing Trump administration has increased tensions with China by including nine Chinese companies, including smartphone maker Xiaomi and the airline company Comac, on the banned list of American investors.

The single European currency is poised to close its worst week since late October as the outlook for the region leaves a lot to be desired.

France has imposed a curfew until 6 pm almost throughout the country. Germany, like individual regions of Spain, is considering the possibility of tightening quarantine restrictions. In Italy, former Prime Minister Matteo Renzi sparked a coalition crisis.

On Friday, the main currency pair reached its lowest levels since the beginning of the year.

"EUR / USD remains under pressure as the news is dominated by the slow roll-out of the EU vaccination program and political issues in Italy. The pair broke through key support around 1.2130, which quickly drew attention to a potential test of key support around 1.2060," strategists at TD Securities noted.

"Apparently, at this stage, market participants focused on negative developments related to the euro. The minutes of the ECB meeting published yesterday reflected the discussion of the rate of the single currency, which only intensifies the pessimism caused by political problems in Italy and the COVID-19 pandemic. The EUR/USD pair needs a clean breakout of 1.2100 or 1.2220 in order to determine the direction," OCBC Bank specialists said.

Viktor Isakov,
Expert analitic al companiei InstaForex
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