US Dollar Price Action on the 2021 Open
US Dollar Price Action Talking Points:
- The US Dollar continues to trade near two-year-lows after the 2021 open.
- This webinar looked at big picture themes in USD while also focusing in on shorter-term setups or dynamics to work with those bigger picture themes.
- The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.
Today’s webinar was my first of 2021 and I wanted to start by looking at some of the end-of-year content that we produced at DailyFX. At the end of each calendar year, the team produces a series of reports that are available to our readers and viewers. We do a quarterly forecast for Q1, as we do for every other quarter; but we also produce ‘Top ideas’ and ‘Top Lesson’ pieces.
My top idea coming into 2020 was the long side of Gold. That worked out pretty well, almost too well, and in effort of just re-publishing the same thing, I went with the short side of USD/JPY for 2021. The pair has already pushed down to the first target, but the big attraction here is for breakdown potential. I discussed some of the backdrop in the webinar, and shared more in the article. If you’d like to access this as part of the DailyFX Top Ideas for 2021, the link below can get that sorted for you:
We’re just a couple of days into 2021 but USD/JPY has continued to slide lower so far in the New Year. With a bit of risk aversion showing on the Monday open, Yen-strength outweighed USD-strength and this is similar to what I was looking for over a longer stretch this year. If we do end up with a pullback in risk-on themes, then I think we’d see USD strength against most currencies, the Yen excluded. And the support that USD/JPY is trading below right now is pretty important, as 103.11 is the 38.2% retracement of the 1998-2011 major move in USD/JPY and, until this year, prices had held up fairly well at that spot. But, USD/JPY is now working on an eight-month low and the door remains open for more in the rest of this year.
USD/JPY Weekly Price Chart: Breakdown Potential in 2021
‘Top Lessons’ are a little more difficult for me. Most of what I learn at this stage is iterative or relatively minor in the grand scheme. Last year, however, was pretty outlandish, and in my humble opinion the big takeaway was just how committed the Fed and global Central Banks are to keeping the bullish risk trends from the Global Financial Collapse in working order.
In terms of market history the past decade has been a significant outlier; driven in large part by excessive Central Bank accommodation. In many cases or in many geographies, this Central Bank accommodation was heavily used to make up for lack of political action. Monetary policy is controlled by Central Banks but Fiscal policy is to be controlled by governments; and in both cases of the US, Europe and Japan, three of the largest economies in the Western world, there are very valid claims that monetary policy has been used in-place of fiscal policy to compensate for lacking political action.
Nonetheless – this does point to the same thing I was looking for coming into last year. Mainly, the attractiveness of metals and perhaps even cryptocurrencies.
If you’d like to access this report, the link below will help:
Gold put in a big start to 2021 trade as I wrote about yesterday. Gold prices broke out and jumped up to a key Fibonacci level around 1943. This was a little too far, too fast for my taste and as I discussed from a shorter-term vantage point in the webinar, the move should be approached cautiously; but, again, it does keep the door open for a continuation of this theme into the rest of the year, with a really encouraging first couple days of 2021 trade for this idea.
Gold Daily Price Chart: Breakout to Begin the New Year
For our quarterly forecasts, I took on USD techs along with Mr. John Kicklighter covering the fundamentals. I issued a bearish forecast for USD this quarter but, as I warned, the oversold dynamic in the USD could allow for a pullback in Q1.
I do think there’s attractive probability of the US Dollar testing the ‘big picture’ low around 88.26 in the first half of this year; but given a couple of possible bullish factors showing at current combined with just how built-in this bearish bend has been, the pair may need to pullback before sellers can really drive it down to a significant new low.
Already in the first few days of 2021, sellers have shown a bit of trepidation sub-90 on DXY. The calendar for the rest of the week remans in focus with tomorrow’s FOMC meeting minutes and Friday’s Non-farm Payrolls.
To get the full US Dollar forecast, please click on the link below:
News flow in 2021 has so far been abysmal. Vaccine hope is slowly slinking away and as virus numbers rise in a number of areas throughout the US, it’s becoming more clear that we’re not quite at the ‘beginning of the end’ that so many had hoped for last year. The virus getting out of control or the vaccines being rendered moot by mutated variants of the virus do present significant risk, obviously, but from a currency perspective I would expect the initial move there to be one of USD-strength, similar to March, until the Fed gets busy at which point we may get a similar response as what was seen from April into the end of the year.
US Dollar Daily Price Chart
Shorter-Term US Dollar
Also in the webinar, I focused in on shorter-term setups, largely on the basis of USD dynamics. For USD-strength strategies, there’s not much to work with at the moment outside of possibly GBP/USD. I had published an article on the topic earlier this morning; but GBP/USD hit a Fibonacci resistance level shortly after setting fresh two-year-highs.
GBP/USD Four-Hour Price Chart
--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.