PrimeXBT Lead Analyst Kim Chua: Despite More Stimulus To Come, USD Looks Poised For More Upside Ahead
In a time where most of the world is still counting the impact of Covid-19, and plans roll out to try and counter its economic effect, eyes are also turning to the greater role stimulus and other Covid-19 fighting strategies will have on the markets.
The US has seen much scrutiny around its stimulus programs, with the latest proposed package under the new administration set to go as high as $1.9 trillion. Theoretically, this kind of economic propping up is not positive for the strength of the US Dollar, but PrimeXBT analyst Kim Chua believes the currency looks set for a greater upside in the coming weeks and months.
DXY Looking Strong
Even though more stimulus is to come from the USA, the USD started 2021 stronger, and chart wise, the USD dollar index (DXY), has painted an inverted head and shoulders breakout, which is a rather bullish formation, Chua explained.
The neckline of 91.0 has been broken, and with this, the DXY looks set to go higher towards the breakout target of 92.5. Moreover, because the USD has been the most shorted asset in 2020, the DXY may rebound higher should traders rush to cover their shorts, potentially bringing DXY to 93 and beyond.
Unless there is a lot of short covering, or that the US stimulus fails to come through, the area between 93 and 94.5 should pose as a strong resistance to keep the DXY’s rise in check.
History Repeating?
The first stimulus bill that was proposed amid the Covid-19 pandemic had its impact on the dollar back in March of 2020. The reasoning behind this is the stimulus helped boost risk appetite, and reduced demand for the safe haven currency.
A big issue in the market when Copnvid-19 started to impact the market was that were investors aggressively buying the dollar due to its safe-haven status, there was a dire shortage of US dollars.
But, when these stimulus packages come in there is an easing of the pressure on hard dollars following the flurry in demand for cash. The Federal Reserve’s ‘big bazooka’ of stimulus in March saw the dollar retracing much of its gains against its major peers.
A New Situation
The way in which the world is handling the market impact to Covid-19 is very different to how it reacted in March of 2020. There has been less panic and fear mongering, and the markets have shown their ability to ride this uncertainty.
For the USD, it is also a different space as the currency showed its strength through the first stimulus release and now looks more steady as a safe haven globally in the light of a second package. The USD’s ability to stay up with the new stimulus may well be down to its relative steadfast strength throughout the entire pandemic.
About Kim Chua, PrimeXBT Market Analyst:
Kim Chua is an institutional trading specialist with a track record of success that extends across leading banks including Deutsche Bank, China Merchants Bank, and more. Chua later launched a hedge fund that consistently achieved triple-digit returns for seven years. Chua is also an educator at heart who developed her own proprietary trading curriculum to pass her knowledge down to a new generation of analysts. Kim Chua actively follows both traditional and cryptocurrency markets closely and is eager to find future investment and trading opportunities as the two vastly different asset classes begin to converge.