Anna Zaitseva, analyst, FINAM Group
On Tuesday, January 12, the European currency continued to weaken against the US dollar, shedding 0.10% to trade at 1.2140 after falling 0.61% a day earlier. The DXY dollar index is up 0.15% to 90.585, after gaining 0.42% on Monday.
In the global markets, especially in the tech segment, there is a decrease in risk appetite and increased volatility, while the US dollar is in demand as a defensive asset. The focus of investors’ attention remains the political battles in the United States, where on the eve of the Democrats launched the second impeachment procedure for incumbent President Donald Trump, despite the fact that his term expires in a few days.
Another significant factor supporting the American currency is the expectations of a large-scale fiscal stimulus package for the US economy, as announced by President-elect Joe Biden, which could accelerate inflation in the country and push the Fed to raise the key rate much earlier than initially expected. Recall that, in accordance with the new approach of the Fed, the interest rate will remain at the current level until inflation reaches the target value of 2% and does not hold at this level for some time. At the same time, it is important to keep in mind that the FRS will use the employment rate as an additional criterion for determining the course of monetary policy. Given the structural nature of current US unemployment, it may take a significant amount of time to reach pre-crisis levels for this indicator, as a large number of workers in industries affected by the pandemic will have to change skills. In turn, this will constrain the Fed’s move too quickly to tighten monetary policy.
In addition, the demand for the dollar is fueled by growing fears about an increase in the incidence of coronavirus infection in the world. So, in many countries, strict quarantine measures continue to operate, and on the eve of China, a lockdown was introduced in Hebei province. It should be noted that in China the number of newly detected cases is currently at five-month highs.
In terms of macroeconomic statistics, important indicators for the European region and the United States were not published on Monday, and on Tuesday in the States data will be released on the economic optimism index from IBD / TIPP, as well as on the number of open vacancies in the labor market from JOLTs. In addition, a number of FRS representatives will speak.
The EUR / USD rate is testing the level 1.2150 for a breakdown downward. Stochastic lines have already reached the oversold zone, which indicates a likely stop of the downtrend in the short term. If the pair can consolidate below 1.2150, the next target for the movement will be the level of 1.2000.
This information is not investment advice.