Hello guys. In this is the FX Axe forex outlook we will cover some fundamental analysis, highlights and macroeconomics. In this blog, we will be focusing on the Euro and the USD.
Before we outline some of the recent economics affecting the forex markets, please note that trading Forex carries a high level of risk to your capital, and you should only trade with money you can afford to lose. Let us quickly explain the US Dollar Currency Index (DXY) because it’s really important for you to use this in your forex analysis to help assess the over strength of the dollar.
The U.S. Dollar Index is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners’ currencies. The Index goes up when the U.S. dollar gains strength when compared to other currencies. We can use this to technically analyse the USD and speculate on future market movements.
Of recent we have seen the USD take its role due to the fact that it is the world’s reserve currency and the denomination for many international business deals. This has been bolstered by restoration of faith in global economies recovering from the global pandemic, hence the weakening of risk off assets such as the Japanese Yen which has recently seen weakness due to negative interest rates. As a safe-haven, the U.S. dollar approached a four-month high on Wednesday as concerns over a third COVID-19 wave in Europe, potential U.S. tax hikes and escalating tensions between the West and China sapped risk appetite.
Extended European lockdowns have shattered confidence in a synchronised global rebound. Meanwhile, the U.S. will have an impressive rebound in coming months in the midst of a strong vaccine roll-out stimulus payments and economic reopenings. How long will this sentiment play out? Will there be another hiccup along the way to normality?
The ongoing spread of the coronavirus in Europe continues to weigh on the single currency and this may increase if the third lockdown in parts of Europe becomes reality. German covid-19 cases are growing ‘exponentially’ according to recent news, France recorded just over 38k new cases on Wednesday, while Poland hit a 2021 high in new infections prompting the government to impose a new three-week partial lockdown. As long as lockdowns loom over the EU and the COVID stricken countries, EURO strength may be something to look forward to in Q3.
The key question for EURO traders looking at the second quarter of 2021 is whether the steep decline in the pair in the first quarter will reverse in Q2, FX Axe are quite sure this could be the case. Although the EU has been slower than both the US and the UK in vaccinating its people against the coronavirus, we believe the US are due to trip up at some point after a great NFP and recent positives with the GBP due some sort of pull back. On the other hand, lockdowns will likely persist for longer in the EU, and the EU economy will therefore recover slower from the Covid-19 pandemic, maybe a potential long term buy position on the Euro moving forward?
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