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More USD weakness to come in 2021?



The USD remains under firm selling pressure, dropping some to its lowest in some 2 and a half years via the DXY (USD Index). In terms of its performance on the year, it is heading for the worst seen since 2017, as markets remain hungry for riskier FX/assets.


There have been convincing range breakouts laying foundations for 2021, here is what we should see through Q1 of the new year.


Timeline recap:


March: Big flows into USD were seen, as markets were scrambling for the world’s reserve currency, due to covid and lockdown fears. Towards the back-end of the month, the greenback started to lose its upside momentum, given the aggressive QE action from the FOMC, diluting the market with dollars.


April: The markets were very much range-bound, taking a breather from the excessive movement in March.


May-August: The downside pressure intensified after a period of consolidation. It came as economies started to gradually reopen and there were encouraging signs of improvement in key data points, following the lockdowns.


September- October: Further consolidation was observed, pullbacks, a needed technical correction following the heavy USD weakness between May-August.


November: Another steep fall for the USD, with the U.S. election results playing a huge part in this. A Biden victory largely reactivated markets' appetite for riskier FX and stocks. Fiscal stimulus hopes and vaccine development progress were also factors in USD downside.


December: Increase momentum in favor of the USD bears, as vaccines start to roll out across the world, U.S. fiscal stimulus progress from politicians, and a Brexit deal finally gets agreed between Britain and the EU.


In summary: At this stage, there isn’t anything to suggest a shift in the dollar’s descent, the door is left open for further downside. The USD index via the monthly chart view is forming somewhat of a potential ‘M’ structure, with the neckline seen at 89.00


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