Global Financial Markets Gain is Negative for U.S Dollar

Investors and currency traders are already pricing in the latest election results printing blue party’s senatorial wins.

The EUR/USD dropped below the 1.2300 support level before settling around the price level of 1.2272 at the time of drafting this report.

The EUR/USD pair’s recent drop was due to a stronger US dollar in play, although currency traders are aware that the greenback’s relative weakness in recent days has been sighted in all foreign exchange markets as currency traders prepare for a year of global economic recovery.

In addition, the old narrative remains intact, as the world’s most powerful currency tends to portray an inverse relationship with global investors’ measure for risk, meaning as the greenback strengthens, and global investors become wary of investing in riskier assets thus prefer to keep their assets in the safe-haven currency.

Consequently, the prevailing bullish trends in global markets are negative for the greenback on the basis that capital is allocated elsewhere meaning the prospect for the U.S dollar index remains negative at least for the mid-term, with further declines expected to breach the 89.00 support in Q1,2021.

That said, it’s key not to rule out USD bulls yet on the bias that the rising COVID-19 caseloads in Western Europe continue, coupled with the fact their political leaders implement more lockdown measures across Western Europe, thereby curbing economic activities and social mobility.

Also, the world’s largest economy is anticipated to recover faster than Europe, particularly as Joe Biden aggressively push for more quantitative easing programs, not forgetting with a more calibrated approach with America’s allies than his predecessor, meaning recent price actions show the odds are low in seeing the EURUSD pair above 1.2500 in such situation.

Recent macros, printing rising COVID-19 caseloads at the second-largest economy, China could push risk sentiments down again.

It’s fair to say COVID-19 still remains on the mind of global investors, as recent price actions show the new safe-haven asset, Bitcoin broke into a new record high as concerns and a possible drag on global economic activities remain.

So far so good, nominal US Treasury 10 year yields are priced above 1%, higher, still-low real U.S Treasury yields point to the riskier currencies having the upper hand.