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Will the dollar still rise anytime soon

By Monday morning, two dissimilar trends had formed. In the foreign exchange market, the dollar rebounds are developing, while on stock exchanges investors are trying to assess the balance between the deteriorating dynamics of retail sales and strong indicators of industrial production. Morning data from China confirmed the trend indicated also by statistics from Europe and the United States: by the end of the year, sales in retail sector were losing momentum. This is partly due to the restoration of coronavirus restrictions amid incidence records. In China, despite a 2.3% GDP growth and a 2.8% increase in industrial production in 2020, retail sales fell 3.9%. Industrial production is the engine of the Chinese economy and an indicator of the health of global demand. For this reason, major stock indexes in Hong Kong and Shanghai are gaining on Monday morning. US index futures have stabilized after a 0.7% dip on Friday, but the foreign exchange market appears to be setting itself up for a stronger dollar pullback after last year’s drawdown. The American currency is adding to both European competitors and the currencies of the Asia-Pacific region. Trading at 90.80, the dollar index is one step away from the nearest resistance area at 91, through which the 50-day moving average passes. A more complete correction could quickly take the American currency to 91.3, to 61.8% from the September-January decline. The weakness of the euro is an important factor in the recovery of the dollar index. EURUSD is trading at 1.2070, returning to the December lows, towards the 50-day moving average. The next support area is at 1.1950, a former strong resistance. On the bears’ side is the political aggravation in Italy, where the government has to endure an important vote in parliament. The British pound only on Friday turned to decline from the 1.37 level, and here the nearest correction target is the area of ​​1.3440-1.3400 against the current level of 1.3560. reversal of the Chinese yuan. It has grown steadily since the end of May, and for it the similar targets of correction now look at the levels of 6.53 and 6.59. The US Treasury plans to raise huge funds to finance operating expenses and massive assistance programs that will temporarily suck capital from other markets. This trend may turn against the dollar in the coming weeks if the Fed increases QE. However, in the medium term, huge borrowings also play against the US currency. If they are unable to bring the US back to faster economic growth, this will increase the supply of dollars in the market. ______________ Alexander Kuptsikevich, Lead Analyst, FxPro

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