US Dollar Implosion Kicks Off 2021 As Global Financial Markets Improve

The US dollar‘s implosion has extended into 2021, with the greenback falling against many of its currency rivals to kick off the first trading week of the new year. After suffering its first annual drop since 2017, the buck may expand its losses this year.

Before investors celebrated the new year, they ostensibly added to their bearish bets. According to data from the Commodity Futures Trading Commission (CFTC), net short non-commercial positions in futures tied to the US Dollar Index (DXY) surged to the highest level in a decade.
The index, which gauges the greenback against a basket of currencies, plunged nearly 7% in 2020 amid improving global financial conditions and optimism over the economic recovery.
In a year-end research note, Goldman Sachs Asset Management anticipated additional dollar depreciation in 2021, alluding to negative real yields, a current account deficit, and a rising stock market.

We see depreciation in the dollar continuing into 2021. Liquidity dynamics and virus news flow may influence the timing of dollar weakness, but not necessarily the medium-term downtrend.

In addition, with the Federal Reserve suggesting a trifecta of stimulus over the next 12 months from the central bank, the White House, and congress, traders are worried about inflation. But market analysts think it would be best for investors to wait to add to their dollar-short positions until the 2020 election dust has been settled.
The state of Georgia will be holding a contentious special election on Tuesday, while lawmakers will certify the Electoral College votes. The runoff election is critical because it will determine control of the Senate, and more than 100 Republicans are already vowing to dispute the certification on Wednesday.
On Monday, the index tumbled 0.48% to 89.51, from an opening of 89.93. The DXY has not traded this low since January 2018.
It will be quiet on the data front on Monday, with only the December IHS Markit manufacturing purchasing managers’ index (PMI) and November construction spending data coming out.
How much of a factor will the coronavirus pandemic play? Market observers believe the impact the new strain of COVID-19 will have on the global recovery will depend on its severity. Despite being approximately 70% more infectious, medical authorities say that the vaccines currently on the market should still be powerful enough to prevent contracting the respiratory illness.
The US reported more than 200,000 new infections on Sunday, and health officials say that the new strain has already been detected in three states. Meanwhile, the UK is considering additional lockdown measures to mitigate the spread of the coronavirus as the country reported close to 55,000 confirmed cases.
The US bond market was mostly in the green to start 2021, with the benchmark 10-year Treasury rising 0.018% to 0.93%. The one-year note was unchanged at 0.109%, while the 30-year bond picked up 0.022% to 1.664%.
The USD/CAD currency pair fell 0.19% to 1.2707, from an opening of 1.2741, at 12:20 GMT on Monday. The EUR/USD advanced 0.66% to 1.2297, from an opening of 1.2242.
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Original from: www.earnforex.com