US Dollar Price Action: USD Two-Year-Lows As EUR/USD Tests 1.2000

It’s the final day before the final month of 2020, and on theme, for this year’s FX price action the US Dollar is testing a fresh two-year-low ahead of the December open. This morning brought announcement from the Treasury department of an extension of the FOMC’s emergency lending programs: This reverses last week’s announcement that was going to allow those programs to expire at the end of the year due to a lack of use. But, one of the reasons for carrying a big bazooka is for the precise reason that you don’t want to use it, with the simple threat of its use creating the behaviors that’re wanted: And with these programs now extended to March 31 of next year, market participants could have more confidence in taking on more risk knowing that there is a bigger backstop behind markets if need be.

With those programs now extended through March 31st, which will allow time for incoming Treasury Secretary Janet Yellen to get a handle on the situation, there could be scope for even further USD losses. Adding to that bearish potential is the fact that the monthly US Dollar chart is showing a not-yet-completed evening star formation, combined with a test through a very major support zone, which could keep the door open for continued USD-weakness into the end of the year and perhaps even through the 2021 open.

US DOLLAR MONTHLY PRICE CHART

(Click on image to enlarge)

US Dollar Monthly Price Chart

Chart prepared by James StanleyUSD, DXY on Tradingview

US DOLLAR BEARISH THESIS: WHAT WILL THE ECB DO?

One of the more interesting aspects of the FX market is one of valuations. Because currencies are the base of the financial system, there’s no other way to value a currency other than other currencies. This is why FX is traded in pairs, and its creates a relative valuation scenario. If a currency as large and widespread as the US Dollar is going to drop in value, then, relatively speaking, other currencies would have to rise in value. The big question is which currencies are primed for strength as pretty much every large Central Bank the world-around is already deep into monetary accommodation.

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