Looking at the EUR/USD chart, a new downtrend is clearly visible. But maybe that’s just the EUR being weak? Thinking back to our Monday newsletter, it is better to pay attention to the movement of the USD against a basket of the world’s major currencies. The best way to do this is with the DXY dollar index.
What are we seeing? The dollar has been rising relentlessly since January 6. Let’s offer a new version of what’s going on, which may become more and more relevant with each month of 2021. COVID-19 is to blame! Yes, there it is again!
While all new restrictions are being introduced in Europe, almost 27 million people in the USA have already been vaccinated, which is more than the number of people who have been previously ill. In 3 or 4 months about half of the American population will have been vaccinated or will have been previously vaccinated. And these are just the official figures. But we all realise that the number of asymptomatic patients who have not been diagnosed with COVID-19 is high.
So, by early summer, most of the US population will no longer be at risk of becoming infected. There will be a sharp drop in new infections. Against this background, previous restrictions will be lifted en masse.
What will people do, after severe quarantines in many states? That’s right! They will start having a blast. Go to bars and restaurants, spend money on vacations, etc. Thank goodness people have plenty of money. The state printed it and gave it away, but there was no place to spend it.
What could this lead to? Certainly a rapid increase in inflation in the USA. And that would lead to a winding down of stimulus programmes and an earlier rise in dollar interest rates. Which would be a heavy blow to stock markets everywhere and a flight of capital into a safe asset that also pays interest. What asset is that? The US dollar of course!
Perhaps that is the reason why it is now hovering over the market, but only the smart money has recognised it so far. Let’s see what happens next.
08.00 German retail sales for December
10.00 EU Composite Manufacturing Activity Index for January
11.00 UK EU Consumer Price Index for January
14.15 USA ADP private sector employment report for January
16.00 ISM Service Business Activity Index for January in the US
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