Dollar not feeling it as the year winds down

Author: Justin Low | Category: News

Dollar keeps weaker across the board today

The key happening in the market is that the House has backed stimulus checks, with the Senate set to convene later today. That is keeping risk sentiment in a more positive mood as the year winds down, with the dollar slumping amid thinner liquidity conditions.

For the dollar, not much has changed in recent weeks and despite a minor pullback in the last week, the overall picture still looks rather bleak for the greenback.

I've mentioned before that looking at the dollar index is not my favourite way of identifying with dollar movements in general - since it is mostly a reflection of EUR/USD - but considering market sentiment, it is one area to keep an eye out for.

While the dollar index is holding just above 90.00 for now, it is still in a precarious spot and buyers are going to have to do more in order to turn things around.

Looking at the big picture of things:

December will mark the first month since 2014 that the dollar index trades back under its 100-month moving average (red line). The breakdown in the technical landscape is even more evident when identifying with its "twin" i.e. EUR/USD:

EUR/USD M1 29-12
As mentioned at the time when EUR/USD broke above 1.2000, it pretty much opens the scope for the pair to roam between that and 1.2500 going into next year.

The 200-month moving average (blue line) @ 1.2623 will also be a key level to watch should the dollar capitulate further in Q1 2021. That said, consensus trades do have the tendency to surprise from time to time and I highlighted those risks yesterday here.
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