US dollar price forecast 19 January 2021

2021-01-19

Dollar is dressed for the season. Forecast as of 19.01.2021Dmitri Demidenko

Janet Yellen’s speech to Congress and Joe Biden’s inauguration could give a new impetus to the EURUSD and determine the future trend. Let us discuss the Forex outlook and make up a [EURUSD][1] trading plan.

Weekly US dollar fundamental forecast

When making investment decisions, traders often use patterns – regularities that occur in the past and are likely to work in the future. What should you do if the patterns indicate opposite directions for a future asset price? Should you avoid trading at all or choose one pattern and ignore another one? Will the [EURUSD][1] be trading according to the seasonal factor or the options market? Should you enter a trade now or wait for a better time?

I offer a statistical analysis with a fundamental element in the LiteForex blog at the end of each month. I explore the seasonal pattern of G10 currencies’ trends. In [December][2], I noted that January was a favorable period for the US dollar. For example, the [EURUSD][1] closed in the red zone in 29 cases out of 45 in January 1975-2020. Nordea Markets notes that after the US President’s inauguration, starting in 1974, the euro or its analog fell against the greenback in 9 cases out of 12. Before the inauguration, there are usually many talks about the stimulus; traders buy risky currencies on the rumor and, next, sell them on the fact.

[EURUSD][1] reaction to the US presidential inaugurations

Source : Nordea Markets

The seasonal factor signals the euro correction to continue, which is confirmed by excessive US dollar shorts in the derivatives market. In the week ended January 12, hedge funds boosted the dollar shorts to the highest level since March 2018. A lot could have changed until January 18, when the [EURUSD][1] dropped to the middle of figure 20.

On the other hand, the USD net shorts were around all-time highs for a long time in the 2000s. And the USD was falling then. Besides, another pattern, the options market indicators signal the [EURUSD][1] correction to end soon. The difference between yearly and monthly dollar risk reversals is again negative, which has always resulted in the USD drop since September.

Dynamics of USD and the difference between risk reversals

Source : Bloomberg

Janet Yellen’s commitment to a strong dollar policy can hardly be used as a trading pattern. Since 1995, the American administrations have consistently adhered to a strong dollar. However, before Donald Trump, nobody publicly spoke about the benefits of a weak door. According to the Wall Street Journal insider, the new Treasury Secretary will say that the markets should determine the greenback’s value relative to other currencies. According to the Australia & New Zealand Banking Group, this phrase means that the White House may be aiming at the dollar weakening.

Weekly [EURUSD][1] trading plan

Janet Yellen’s speech to the Congress in an attempt to pass a $1.9 trillion stimulus package and Joe Biden’s inauguration are just events, which should confirm a trading pattern. If the [EURUSD][1] goes down below 1.205, the correction should run deeper. If the bulls hold the price above 1.208, the uptrend could recover. However, the euro’s rally won’t be easy.

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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