When will the dollar rally end?

Morning Stock News

Gold  1708,455
(+0,62%)

EURUSD   1,1915
(-0,01%)

DJIA  31521
(+0,21%)

OIL.WTI  67,555
(+1,97%)

DAX   14048,50
(+0,02%)

Last week turned out to be quite successful for the US dollar. On Friday, after the publication of the US employment reports, the dollar continued its rally and EUR/USD reached its lowest level since last November. It would seem that pumping huge amounts of dollars into the US economy should have the opposite effect.


EUR/USD

EURUSD

Thanks to the opening of restaurants and bars, the US economy is gaining momentum. More than two-thirds of new jobs have come in the catering sector. We can already see how the lifting of restrictions is having an effect on the economic recovery. This trend will continue as more and more Americans are vaccinated with the COVID-19 vaccine.
After Powell’s speech it was clear that the US Federal Reserve was letting bond yields float freely. The main focus for the Fed remains the labour market. Powell stated that the labour market is still a long way from recovering. This can be interpreted to mean that strong labour market reports will not be a signal for monetary policy tightening decisions for some time to come.
Investors will now have to decide how to deal with the USD. If bond yields continue to rise because of weak demand, investors are likely to continue exiting risky assets. If that is the case, the dollar will continue to strengthen.
Due to the slow introduction of the vaccine in Europe it can be seen that the USA is coming out of the lockdown faster and therefore a faster recovery of the US economy than that of the Eurozone can be predicted. ECB meeting is coming up but the bank is not going to make any additional monetary policy decisions in advance. This will put additional pressure on the Euro and it might well push the EUR/USD down to the 200 SMA at 1.18.
While the trend of USD strengthening remains in the investors’ preferences, it is worth remembering that there is another bailout plan being prepared, which will bring huge amount of dollars to the markets. Where that money will go is hard to predict, but it is worth considering that the markets may try to buy back the falling stock market, which will put pressure on the dollar.


What’s in store for us today?

00.50 Japan’s January nonseasonally adjusted balance of payments
08.00 Germany’s Industrial Production in January
11.00 Address by E.Bailey, Governor of the National Bank of England


Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider.
You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.