While much of the world is still calculating the impact of Covid-19 and making plans to counter its economic impact, it is also worth looking at the greater role of incentives and other strategies to combat Covid-19 in markets.
The United States has witnessed a close scrutiny of its stimulus programs, with the latest proposed package under the new administration expected to reach $ 1.9 trillion. In theory, this kind of economic support is not positive for the strengthening of the dollar, but PrimeXBT analyst Kim Chua believes that the US currency looks set for significant growth in the coming weeks and months.
DXY looks strong
“While everyone is expecting even more stimulus from the US, the dollar started 2021 stronger and the US Dollar Index (DXY) chart drew an inverted breakout of the Head and Shoulders pattern, which is a pretty strong bullish formation,” Chua explained. …
The 91.0 leverage has been broken and with that the DXY looks set to move higher towards the 92.5 breakout target. Moreover, since the US dollar was the best-selling asset in 2020, the DXY could bounce higher if traders rush to close their sells, potentially pushing the DXY to 93 and higher.
Unless there is much short coverage or if US stimulus fails, the area between 93 and 94.5 will need to become strong resistance to contain the DXY rally.
History repeats itself?
The first stimulus bill, proposed amid the Covid-19 pandemic, had its impact on the US dollar back in March 2020. The reason is simple: incentives have helped to increase risk appetite and reduce the demand for the haven currency.
The big problem for the US in the market during the pandemic was that investors were aggressively buying the dollar because of its safe haven status, as well as an acute shortage of this currency. But when stimulus packages like this emerge, there is an easing of pressure on hard dollars in the wake of a flurry of cash demand. The big bazooka of Federal Reserve stimulus in March saw the dollar recover most of its gains against its major currencies.
The way the world deals with the market impact of Covid-19 is very different from how it responded to the crisis in March 2020. There was less panic and fear, and the markets showed their ability to overcome this uncertainty.
It’s a different space for the US dollar as well, as the currency demonstrated its strength in the first stimulus release and now looks more resilient as a safe haven around the world in light of the second package. The dollar’s ability to keep up with new stimulus may well be boiled down to its relative enduring strength throughout the pandemic.
About Kim Chua, PrimeXBT Market Analyst:
Kim Chua is an Institutional Trading Specialist with a successful track record of working for leading banks including Deutsche Bank, China Merchants Bank and others. Chua later launched a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also an educator at heart – she developed her own proprietary trading program to pass on her knowledge to a new generation of analysts.
Kim Chua actively follows both traditional and cryptocurrency markets and is keen to find future investment and trading opportunities as two vastly different asset classes begin to converge.