Look to buy at 1.2100 for 1.2550 with a stop below 1.1990.
After reaching a high on 6 January 2021, price has been on a decline. It has since reached a low of 1.2053 and has rebounded higher. At the low, there was a Morning Star candlestick price pattern. This is a reversal candlestick price pattern which hints of a potential price reversal. The decline has reversed just below the Fibonacci 38% of the rally from 1.1602 to the high of 1.2349. This could be a sign that the recent decline is just a correction. If this is just a correction, the next price movement would be a rally above the previous high of 1.2349.
Stochastic has reached the oversold zone and has turned up after a bullish crossover. This could be a sign of an uptrend in price trend. MACD is just below the zero line and remains bearish but there could be a bullish crossover, which is a hint of a change in price trend.
A US stimulus relief package of US$1.9 trillion has been proposed by US President Joe Biden. With Congress in the control of the Democratic Party, getting this stimulus package passed is not going to be hard. This package is to help the country and its citizens cope with the coronavirus pandemic, which has led to business failure and many of its citizens out of jobs. This massive amount of money, in addition to an earlier US$5 trillion in 2020, is likely to weaken the US dollar.
While fiscal policy is likely to weigh on the US dollar, monetary policy is also going to add to the weigh hanging over the US dollar. Fed’s chairman Powell has said the US economy remains far from Fed’s goal and he saw no reason to alter its highly accommodative stance at least until the job is well and truly done. This is likely to keep the US interest rate for some time or least until the economy is on a firm footing. This is likely to take away the big advantage that had kept the US dollar strong in the past few years.
While the number of cases continues to grow in the US, risk sentiment has been reduced as a result of a vaccine. There are hopes with more people vaccinated against the coronavirus, the number of cases will start to fall and over time, this pandemic will die down. With the pandemic ending, the US and the global economy will recover and ends 2021 in positive GDP growth rate. Such hopes have reduced the important of the US dollar as a safe haven. With Trump leaving office soon, demand for US dollar as a safe haven is also being reduced. Tariffs may have seen its best days. Confrontational policy with China may also have seen its heydays.