USD Outlook Bearish On Earnings Data, Stimulus Talks, Accommodative Fed

US Dollar Basket

USD LOSSES MAY BE AMPLIFIED BY CORPORATE EARNINGS

The US Dollar may fall if corporate earnings from large-cap companies – like HSBC and Walt Disney to name a few of the many – put a discount on haven-linked assets. Last week, four out of the five members of the so-called FAANG group – Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Google (GOOGL) – posted record-breaking earnings in the worst recession in a century.

Despite the devastation caused by the coronavirus pandemic, technology stocks continue to surge in tandem with demand for digital services. A key factor behind the tech sector’s rise has been in part due to government shutdown policies and the implementation of work-from-home policies. This in turn has helped insulate technology stocks from the impact of the COVID-19 impact.

US DOLLAR HAMMERED BY FOMC RATE DECISION, STOCKS JUMPED WITH JOY

However, there also was another factor that hurt and may continue to damage the US Dollar and push stocks higher. In summary, last week, the Fed said it will not let go of the proverbial gas pedal in regards to QE, and emphasized that tightening credit conditions is not even on the agenda at this time. Due to the “considerable” risk of the coronavirus, monetary authorities will be holding rates near zero for the foreseeable future.

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The notion of an uninterrupted stream of liquidity from a devoted Federal Reserve helped further quell credit crisis fears and lift market sentiment. Consequently, this hammered demand for haven-linked assets like the US Dollar – and amplified gains in cycle-sensitive assets like stocks. These kinds of messages may therefore continue to be a point of weakness for the USD until another possible crisis triggers a flight to safety.

US DOLLAR DEMAND MAY FADE IF DATA POINTS TO ECONOMIC STABILIZATION

This week, a cascade of PMI data out of key supply-chain and consumer-oriented economies will be crossing the wires. Better-than-expected prints could point to signs of economic stabilization and push cycle-sensitive assets higher at the expense of havens. Some alleviation of lockdown measures have helped restore economic activity, but that may soon turn around as cases and deaths – particularly in the US – continue to rise.

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