Forecast for US dollar as of 30 December 2020

2020-12-30

Forex in January: Is dollar back in the game?Dmitri Demidenko

Despite the setbacks in 2020, the seasonal factor hints that the US currency will be able to retort sharply in early 2021. Will markets be disappointed in Biden? Will a double-dip recession or vaccine problems scare traders? Let us discuss this topic and make up a trading plan for [EURUSD][1], [USDCHF][2], [USDSEK][3] and [AUDNZD][4]

Monthly US dollar fundamental forecast

December often serves as “a bridge to the next year.” In December, Investors were full of optimism. They believed in the next year’s victory over COVID-19 and the rapid growth of the world economy. They also bought shares very aggressively, which contributed to the growth of the global risk appetite and the sale of safe-havens. The US dollar was pressured by the Fed’s intention not to raise the federal funds rate, at least until the end of 2023. As a result, all 5 out of 5 [November][5] strategies brought profit. [USDSEK][3] (+3.5%), [USDCHF][2] (+1.9%) and [EURUSD][1] (+1.8%) sales performed best. The deposit has been increased by 8.9% using statistical analysis with a fundamental bias.

Unlike the first month of winter, the seasonal factor in January favored the greenback. From 1975 to 2020, it often strengthened against the Canadian dollar (30 out of 45 cases), the euro and the Swedish krona (29), the Swiss franc (27), the Australian dollar (26), the British pound, and the Norwegian crown (25). Only the New Zealand dollar and the Japanese yen showed decent resistance to the US dollar in January.

Rise-and-fall periods

Source: BoE, LiteForex analysis.

In terms of averages and medians, European currencies were among the top outsiders at the beginning of the year. As a rule, December is a favorable period for them, which can not be said about January. Curiously enough, the oil-exporting countries’ currencies, the Canadian dollar, and the Norwegian krone did not look as bad as one would expect from the rise-and-fall statistics. This suggests a limited potential for [Brent][6] and [WTI][7] correction.

Averages and Medians

Source: BoE, LiteForex analysis.

In unfavorable times, the euro lost about 3.3% of its value against the US dollar. The Swedish krona lost 3.2%, the Swiss franc - 3.1%, and the Canadian dollar - 2.4%.

Dynamics of currency rates during rise-and-fall periods

Source: BoE, LiteForex analysis .

In general, the seasonal factor hints at a slight deterioration of the global risk appetite in early 2021, which may be due to Joe Biden’s inauguration and the double recession of many of the world’s leading economies in the fourth quarter. Failures in the vaccination process are still possible, but let’s not focus so much on this issue.

Market optimism for the US president-elect risks dying away. Suppose Democrats fail to win a Senate majority, it will reduce the likelihood of additional fiscal stimulus. Besides, Biden will remain tough on China and demand that Beijing fulfill its obligations under the trade deal. Growing uncertainty will increase the risks of [EURUSD][1], [USDCHF][2] and [USDSEK][3] going down. But I don’t think the correction will be deep unless the vaccination problems begin to appear.

The pandemic will continue to dominate financial markets in early 2021, but investors will likely recall the trade wars and China. You can benefit from this with [AUDNZD][8] sales. China’s troubles may cause the Australian and New Zealand dollars to fall, but tensions between Beijing and Canberra could weaken the Aussie more than the Kiwi.

Price chart of EURUSD in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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