The USD Drops to 30-Month Lows, What’s next?

December 2, 2020 at 11:18 PM

The US dollar has been dropping nonstop since the election in early November, and it has declined to 30-month lows this week, with the dollar index trading at around 91.40.

Moreover, the index dropped to new lows from a technical analysis perspective, which confirmed the bearish bias. That has pushed the EURUSD above the important 1.20 level for the first time since the summer 2018.

As the new Biden administration leans toward socialism and wants to erase student debt, unleashing massive fiscal spending, combined with an even more massive monetary stimulus, investors have been dumping the greenback.

The Federal Reserve (Fed) is expected to unveil more stimulus at its December meeting, which might be another hit for the USD. 

That bearish impetus is there to stay for many months; therefore, the USD might fall further. Moreover, judging from rising equities, sentiment in the markets remains positive. 

Additionally, US inflation will probably noticeably rise, which is already being reflected by falling US (real) yields. In this kind of environment, the USD should remain under pressure. 

Regarding the EURUSD pair, as long as it trades above 1.20, which is the crucial support now, the short and medium-term outlook seems bullish. 

The next target for the pair should be at 2018 highs near 1.25. However, judging by the recent spike, we might see some days of consolidation soon. 

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