US Dollar Continues to Weaken Against its Rivals

December 14, 2020 17:00

This week, the Federal Reserve will hold its last monetary policy meeting of 2020, set against a backdrop of high expectations following a similar meeting in Europe and poor employment data in the US.

Over the past months, we have been seeing the US dollar experiencing a downward trend against major currency pairs, such as the EURUSD, GBPUSD and USDJPY. This is partly due to the various stimulus measures which have been introduced by the Federal Reserve in the face of the pandemic and Joe Biden's victory, leading to many investors losing confidence in the US dollar.

This may also be part of a strategy to make US companies appear more attractive in the export market and thus encourage their major stock indices to trade. These indices, after sharp falls at the start of the pandemic, are currently at historic highs, with the DJI30 reaching over 30,200 points, despite the strength of gold over these months.

Whilst we wait for the outcome of the Fed's meeting and to see whether or not the US Congress will announce its new stimulus program, the US dollar continues to weaken against other major currencies. So far this month, here's what we've seen:

  • The dollar index has lost around 1.62%
  • It is trading at around 90.50 points
  • Its recent drop occurred after losing its previous support level of 92.13 points, increasing the downward trend that began at the end of March after reaching 103.00 points

With its three moving averages sloping downwards and the MACD in negative territory, the outlook in the medium term continues to be bearish. In the shorter term, however, we may find a recovery due to the oversold position observed in the Stochastic indicator.

Source: Admiral Markets MetaTrader 5 - US Dollar Index Daily Chart. Date Range: August 23, 2019, to December 14, 2020. Date Captured: December 14, 2020. Past performance is not necessarily an indication of future performance.


Focusing solely on EURUSD, last week saw a week of consolidation, with a 0.08% decline. However, the uptrend remains strong after finally breaking out of the side channel. It is not impossible that the EURUSD could correct itself in the coming days, but as long as it does not break below its previous resistance level (green), sentiment will remain bullish and could reach near to 1.25.

Source: Admiral Markets MetaTrader 5 - EURUSD Daily Chart. Date Range: August 19, 2019, to December 14, 2020. Date Captured: December 14, 2020. Past performance is not necessarily an indication of future performance.

The evolution of EURUSD over the past five years:

  • 2015: - 10.18%
  • 2016: - 3.21%
  • 2017: + 14.09%
  • 2018: - 4.47%
  • 2019: - 2.21%


Turning our attention to GBPUSD, we can see that the pair has been following a very clear uptrend ever since, on 20 March, it hit a low of around the 1.14100 level, climbing to a high of 1.35850.

It is currently in a new bullish momentum after bouncing off its upward trend line (red). It is important to see if the GBPUSD is able to break through its current green resistance level to seek new highs. Alternatively, it may bounce back down and begin a possible trend reversal formation that could be confirmed if the price breaks out of its current upward trend line that is its current support level.

Source: Admiral Markets MetaTrader 5 - GBPUSD Daily Chart. Date Range: August 19, 2019, to December 14, 2020. Date Captured: December 14, 2020. Past performance is not necessarily an indication of future performance.

The evolution of GBPUSD over the past 5 years:

  • 2015: - 5.38%
  • 2016: - 16.26%
  • 2017: + 9.43%
  • 2018: - 5.54%
  • 2019: + 3.95%


Finally, in the USDJPY, we can notice how the Japanese yen has once again behaved as a major asset since the beginning of the pandemic. This is due to the fact that, in times of crises, Japanese investors tend to unwind their overseas positions and seek refuge in their own currency.

This behaviour has led to the price losing its support level of 104.00 yen per dollar. It is important to see if it is able to regain this support level or if it pulls back and continues the fall. The definite loss of the lower band of this wide channel could lead the USDJPY to look for levels close to, or below, the yen per dollar.

Source: Admiral Markets MetaTrader 5 - USDJPY Daily Chart. Date Range: July 6, 2014, to December 14, 2020. Date Captured: December 14, 2020. Past performance is not necessarily an indication of future performance.

The evolution of USDJPY over the past five years:

  • 2015: + 0.53%
  • 2016: - 2.85%
  • 2017: - 3.59%
  • 2018: - 2.76%
  • 2019: - 0.88%

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