US Dollar Price Action Into 2021: EUR/USD, GBP/USD, USD/JPY

With now less than two weeks to go until the 2021 open, markets appear primed for continued volatility in the New Year as a number of pertinent drivers remain. Probably one of the more noticeable FX trends of 2020 has been USD-weakness. The US currency put in a run of strength as the pandemic was getting priced-in during late-February and early-March trade. But, that didn’t last for long as a very busy FOMC helped to soothe investors’ fears, with US equities putting in a significant bounce from the March 23rd lows.

And for the rest of the year, risk assets remained strong and supported as the US Dollar just continued to fall to fresh lows. The big question for FX markets ahead of the 2021 open is whether the US Dollar has more room to go. We’ve just released updated forecasts for Q1 of 2021, and I authored the US Dollar technical portion of that report with Mr. John Kicklighter covering the fundamentals.

Of note from the longer-term chart below, the US Dollar completed an evening star formation with the November close. Such formations are often followed with the aim of bearish continuation after the reversal showed within the formation. It just so happens that this evening star also printed on the underside of a prior bullish trendline (inflection highlighted in green).

US DOLLAR MONTHLY PRICE CHART

US Dollar Monthly Price Chart

Chart prepared by James StanleyUSD, DXY on Tradingview

On the above chart, there’s a big area of possible support lurking below, around the 88.26 price on DXY. This is the 50% marker of the 2011-2017 major move, and when it came into play briefly in 2018, it caught the low and now functions as the two-year-low in DXY.

It appears the big key to whether or not this comes into play is the Federal Reserve and how they respond to incoming inflation data. One of the big pivots from 2020 was the bank moving to target ‘average inflation,’ which should give the FOMC a bit of subjectivity to rate policy should inflation begin to increase.

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