Recently, the greenback has been trying to recover. This fact makes bears nervous. Friday's gains were the biggest in more than two months. The spike in the price was driven by higher yields. Also, the greenback may have taken a break from falling due to the optimism of market players.
Today, the situation may change due to the Non Farm payrolls report. The data will help make it clear whether the US dollar has stopped falling or it has been the end of the downtrend. Since March, the US dollar index has dropped by 14%. New factors may cause a further depreciation of the greenback.
Thursday's weekly jobless claims data turned out to be better than expected. Together with hopes on stimuli, it adds optimism to the markets.
Notably, the ten-year yield ended the session above 1% amid hopes that if Democrats won the Senate and Joe Biden was approved the winner of the election, Democrats would push through their sweeping legislative agenda.
In the past four weeks, the ten-year yields' rally was associated with the victory of Joe Biden and the potential for Democrats to control the Senate. This, in fact, was the main reason for the US dollar's recovery.
This year, the ten-year yield is expected to skyrocket to 2% according to Cresset Capital Management, which builds its expectations based on the demand for copper and gold.
As for the technical analysis, the pressure on the greenback decreased due to its oversold status. The US dollar index plunged to almost 3-year lows. Bears now need to take a break before a new wave of sell-offs begins.
From a fundamental point of view, strong macroeconomic indicators could increase the number of buy deals.
Global central banks and weak USD
A weak US dollar is a real headache for the world's major central banks. Due to the global devaluation of the American currency, the euro and the yen have reached multi-year highs. The EUR/USD pair is heading to the 1.25. The 6-year high is unlikely to please the ECB. The regulator may attempt to stop further growth of the euro.
Strategists at Credit Agricole believe that 1.25 is a point of no return for the ECB. A breakout above this level would put the euro into an overbought area and hurt the competitiveness of European companies in international markets. The regulator will start taking measures if inflation in the eurozone is kept below the already sluggish forecasts of the central bank.
The Japanese yen also sparked the attention of central banks, as it broke through 9-month highs. At this rate, the currency will soon reach 5-years highs. Meanwhile, the Chinese yuan is already out of its comfort zone. For the first time in several years, the price is above $6.5. All this indicates how greatly other currencies depend on the state of the American dollar.
The European regulator hinted last year that it would take action if the growth of the euro became an obstacle. In addition, member of the ECB's governing council, Philip Lane, harshly suppressed the euro's attempt to consolidate above 1.20, saying that the national currency rate was important for monetary policy. When the euro tested this psychologically important level, traders expected some steps from the ECB, but they did not follow. Instead, we see that the euro is skyrocketing, driven by a massive fall in the greenback. Most likely, the trend will continue, and the EUR/USD pair will consolidate at 1.25 in the future.
