By Lukman Otunuga, Research Analyst, ForexTime
Things could get ugly for the Dollar as traders await the outcome of a Senate election in Georgia.
After losing almost 7% of its value in 2020, the tired Dollar has stumbled into the New Year in a depressed and unloved fashion. It has weakened against every single G10 currency since Monday and even pushed emerging market currencies up to record highs amid the stimulus fueled optimism. Positive economic data from Asia also played a role in reviving optimism around the global economy – ultimately blunting appetite for the safe-haven currency. The path ahead for the Greenback is filled with many obstacles with the latest one taking the form of the U.S Senate run-off election in Georgia.
What do the runoffs mean for the Dollar?
Investors seem to be bracing for a possible ‘blue sweep’ outcome in Georgia where Democrats win both seats, handing them control of the chamber.
Such an outcome may pave the way for larger fiscal stimulus and infrastructure spending, essentially weakening the Dollar further.
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However, a ‘blue sweep’ could also result in higher tax hikes and greater corporate regulation – potentially punishing stocks in the short to medium term. Given the larger fiscal stimulus is seen triggering inflationary pressures over time, the outlook for the Dollar points south.
When will we get the results?
Elections for the two Senate seats in the US state of Georgia are quite tight with 98% of votes already counted.
Early on Wednesday, Mr. Warnock claimed victory against Ms. Loeffler while David Perdue remains neck and neck with Democrats Jon Ossoff. The final result is not expected at least before Wednesday morning in the United States.
Let us not forget about the FOMC minutes…
All eyes will be on the FOMC minutes on Wednesday evening which should shed some light on the Fed’s thinking on monetary policy for 2021.
In December, the central bank left interest rates unchanged and signalled that near-zero interest rates would remain a theme through 2023 to support the US economy.
Given how the Fed vowed to inject cash into the financial markets until the U.S economic recovery is secure, it will be interesting to see whether the minutes provide further insight.
If the minutes adopt a dovish tone, the Dollar is poised to extend losses in the week ahead.
Technical outlook: DXY approaches 89.00
A picture is worth 1000 words.
The Dollar Index is heavily bearish on the daily charts as there have been consistently lower lows and lower highs. A solid daily close below 89.00 could open a path towards 88.00. For bulls to jump back into the game, a strong rebound back above 90.00 needs to materialise.
Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.
Article by ForexTime
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