The first 12 days of 2021 has been interesting for the US Dollar. In a January 4 summary by Bloomberg News, firms like UBS, TD Securities, Societe Generale, Pictet, Morgan Stanley, Lombard Odier, Mizuho, JPMorgan Asset Management, ING, Goldman Sachs, Fidelity, and BNP Paribas all assume that the Dollar will soften in 2021. A majority of firms also think that emerging market FX will gain.

The rationale is easy to understand. The new US president, Joe Biden, will likely boost US fiscal stimulus with almost one trillion USD, the equivalent of nearly 4.5% of US GDP. The abundance of Dollars will lower its value. However, as an old trader can testify, it is probably past its expiry date when an idea gets too mainstream.

Another idea proposed by the top banks is to buy emerging market currencies. With so many of them saying that it is a good idea, it appears to be a foolproof trade. However, if we look at how many of the top EMFX pairs have traded at the start of the year, we see them losing out instead of gaining.

Positioning in the futures markets is also suggesting that the bearish positioning in the Dollar might be at an extreme level. In a report by Danske Bank, the aggregate USD positioning vs the EUR, JPY, GBP, CHF, CAD, AUD, NZD, MXN, BRL, and RUB shows that the current USD positioning has not been this short since 2011. With Dollar positioning at an extreme, traders are echoing the view of bank strategists.


Another telling sign is gold prices. Jon Ossoff and Raphael Warnock winning the Georgia Senate runoffs should have sent gold prices higher. Also, the soft December Non-farm payrolls figures should have done the same. Instead, gold prices slid by 12.94% from their January high.

The sharp rise in the US ten year government bond yield from 0.913% on January 5 to 1.168% on January 12, can explain the drop in gold prices. But traders being too short USD is also a good explanation. The next significant resistance level for interest rates could be the June 2016 low of 1.317%. The rise in yields can also be the driver of the Dollar turning higher in 2021.

So should we take outright long positions in the Dollar? I think that could be premature, given the strong downtrend in the dollar index (DXY). However, a break to December 9 high of 91.21 could be the start of a revival of the Dollar.

DXY Index, Weekly chart


High-risk investment warning: Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Any opinions, news, research, analysis, prices or other information contained in this presentation is provided as general market commentary and does not constitute investment advice.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh one-month low amid souring market mood

EUR/USD has been extending its falls and dips below 1.21 as US retail sales badly disappointed and the worsening mood is supporting the safe-haven dollar. Markets digest Biden's stimulus plan. US Consumer Sentiment declined to 59.2 points. 


GBP/USD retreats toward 1.36 amid fresh dollar strength

GBP/US has pared its gains and falls toward 1.36 as the dollar gains ground. The UK economy shrank by 2.6% in November, better than estimated. The UK is ramping up its vaccination campaign and PM Johnson is pressured to ease the lockdown. 


Gold extends sideways grind near $1,850

The XAU/USD pair registered small daily gains on Thursday but struggled to extend its recovery amid a lack of significant fundamental drivers on Friday. As of writing, the pair was up 0.15% on a daily basis at $1,849.

Gold news

Forex Today: Markets “sell the fact” on Biden's stimulus, dollar rises, retail sales eyed

Markets are on the back foot after Biden hinted about tax hikes while introducing stimulus. The safe-haven dollar is edging higher despite Powell's pledge to keep monetary policy accommodative. 

Read more

DXY breaks above key downtrend, eyes move above 91.00

USD has been strongly supported on what has shaped up to be a very much risk off final trading day of the week. Most G10/USD pairs have seen significant weakness, aside from CHF/USD and JPY/USD, given that the two currencies are also considered “safe havens”.

US Dollar Index News

Forex Majors