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Dollar Trading Made Easy – Sell, Sell, Sell

Posted: Friday, November 27th, 2020

Estimated Reading Time: 3 minutes

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Dollar trading in 2020 followed two different paths. When the pandemic reached the West, a sudden need for the greenback hit the financial markets. As such, the Dollar gained across all G10 currencies. Moreover, it gained against gold and Bitcoin too. Furthermore, stocks collapsed.

And then the Fed intervened. It opened Dollar swap lines with major central banks in the world, and so the Dollar trading reversed.

Such an impact the Fed decision had that the trend did not reverse to this day. Because of that, all G10 currencies are at their 2020 highs against the greenback as we head into the end of the year trading.

The EURUSD trades close to the 1.20 level as America celebrates Thanksgiving. Also, the AUDUSD sits close to 0.74, and GBPUSD trades with a bid tone as well.

Will Dollar trading reverse course in the weeks left until the end of the year?

Dollar Trading

Three Events That May Change the Dollar Trading Course

Traders know that the bearish sentiment on the Dollar started with the Fed. What is not so obvious is the scale of the new Fed easing.

In the aftermath of the 2008-2009 Great Financial Crisis, the Fed introduced the Quantitative Easing (QE) program. Destined to lower the yields on the curve, it is used to ease more when the federal funds rate hits the lower boundary.

The Fed had great success with the QE in the years that followed the Great Financial Crisis. So big was the success that inflation bounced, the Fed raised the rates, and employment reached its maximum level.

When the pandemic hit in 2020, the Fed lowered the rates first. Next, it restarted the QE. However, in doing so, it outpaced all other central banks in the world – combined.

Almost a quarter of all Dollars ever printed were issued in 2020. More is to come. Because the Dollar is the world’s reserve currency and the preferred currency for debt-issuing, the Fed’s actions changed everything in Dollar trading terms. More precisely, traders had only one thing to do in the last several months – sell, sell, and sell the Dollar again.

NFP Next Friday

The Non-Farm Payrolls (NFP) next Friday is the first major event in the days left until the end of the year. Judging by what the weekly jobless claims indicator shows, the NFP will likely disappoint. However, it does not imply a lower Dollar, as the market may turn to safety.

ECB in Two Weeks From Now

The European Central Bank (ECB) will deliver its final monetary policy decision of the year in two weeks from now. The central bank made no secret that it does not like the EURUSD close to 1.20. Yet, lower Dollar trading conditions persist.

Among currency traders, there is a saying that if the EURUSD does not turn, no trend will turn. Hence, a sharp reversal on the EURUSD before or during the ECB may stop the Dollar bearish trend.

Fed Has the Last Saying

Finally, the Fed is due right before Christmas. In three weeks from now, the Fed will likely ease some more. Depending on where the G10 currencies trade against the Dollar, it will be an interesting press conference to watch.

The Fed has always led in innovating monetary policy. Just like it did with the QE after the 2008-2009 Great Financial Crisis, it did this year with the shift to Average Inflation Targeting.

Dollar trading for the next three weeks will be difficult. With so many actors involved, volatility can only increase.

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