Analysis About the US Dollar in the Coming Weeks Ahead

By Aiza Belle | 19 October 2020 | |
Analysis About the US Dollar in the Coming Weeks Ahead

Is the dollar bound to have at least a temporary recovery before the US National elections?

The greenback surprised us last week with a rally instead of a continuous drop to it's last quarter's low near 92.25, thanks to a better than expected PPI, Philadelphia Fed Manufacturing Index, Retail Sales and Consumer Sentiment figures. Though actual unemployment claims were higher than forecast (898k vs 810k), it didn't dampen the USD's rally last week.

For this week, Pelosi gave a deadline until Tuesday regarding the next stimulus and its approval before the election. But in my opinion, they won't arrive on a deal and it will be delayed after the Nov. 3 election -- which may give another temporary boost for the dollar.

However, an impending Biden win with high probability that his administration will provide a huge stimulus by Q1 next year (to the tune of $3.5T) is assumed to cause more weakness in the dollar, ceteris paribus -- and even Goldman Sachs suggests shorting the dollar when that time comes. 

DXY down forecast
Oh no...

BUT, if that amount of stimulus won't be approved by Biden either, and a lower amount is distributed -- just enough to pump the economy to recovery (and not too much that both consumers and businesses get entitled, or worse, cause an inflation spike), along with optimism regarding how the new administration will handle the pandemic, expectation on Biden amending global ties back to how it was prior to Trump's America First policy -- which ironically just led to China further expanding its global influence and replacing the US global dominance -- may not only encourage 'normalcy' regarding the dollar strength, but actually boost it too for getting back that so called dollar 'premium'.

DXY recovery forecast
Hoping for this.

Or is it?

If we look historically, the greenback started dropping when Trump administration started disappointing people back in 2017 (aka Trump slump) for not delivering the promised healthcare and tax cut reforms. However by 2018, DXY started slowly recovering when Trump began enforcing additional tariffs not just on Chinese goods, but imports from other countries as well.

USD Historical Chart
Not much recovery, more like a cautious one.

Assuming another possible wave of pandemic is controlled by around November 12 (people maintain social distancing along with other precautions like wearing masks and proper hygiene especially during Thanksgiving and Halloween), and/or possible civil unrest is prevented right after the US elections, and also barring any other unusual event (i.e. George Floyd and the Black Lives Movement) especially crime rates usually go up as Christmas season approaches, along with optimism that a proper vaccine is in the works, the greenback is most likely going to recover soon back to 100 in the coming months ahead as US economy starts recovering as well -- regardless of who wins as president.

The greenback is less likely to breakout past 100 though until
1. the US economy fully recovers from the pandemic
2. US manages its fiscal balance and pay off debts
3. US goods and services become actually competitive with China's, and challenge China's increasing dominance globally
4. US dollar gets its premium back despite the appeal of cryptocurrencies for some, and digital form of EUR in EU
5. Move to digital dollar as Jerome Powell hinted, although no actual confirmation from US central bank yet that they're officially launching that anytime soon

work from home new normal
masked woman working from home by Engine A.

But if things go wrong in the worst way possible, we can expect this new normal to continue -- probably a tighter lockdown or some other reason why there's a need for most people to remain studying and working from home, and maintaining social distancing, starting mid December this year until March 2023, as astrology hints. Along with that, as more stimulus coming from the US government comes, expect the US dollar to drop further down to 88 -- or may even reach 84.5 (current period 38.2 fibonacci).

Hoping that doesn't happen, and personally wishing astrology is wrong (or at least the way most astrologers predict those transits). 

Most polls predict that Biden has 5-10% edge over Trump and will win. But my dream earlier this year said it's still gonna be a Trump win -- but then again that was during the time Bloomberg and Yang were vying for Presidency, so probably that's not updated anymore lol.

Also despite a larger funding for Biden than Trump from Wall Street, there is still that looming Blue Wave fear among them since part of Biden's campaign is increasing taxes to 40% for capital gains of those who earn $1 million and up annually, and increasing corporate taxes to 28%

Whether an expected more stable economy without trade wars offsetting those additional tax burden and possible civil unrest especially among gun activists convince the actual US business elites to shift support to Biden (or Kamala as some insist that Biden won't last long -- that's rude though!), or stay "safe" and stick to Trump still remains to be seen.

Analysis About the US Dollar in the Coming Weeks Ahead

Feature photo by Bermix Studio of Unsplash.


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