2020 has been an epic year for the USD Index. Following the multi-decade highs of mid-March, the Greenback has been on a prolonged bearish trend. Why all the weakness? Wasn’t the USD a COVID-19 safe-haven? The reasons are simple: Fed unlimited QE and U.S. government stimulus. So, what’s next for the USD? The answer to that question is easy ― more of the same.

Over the past 90 or so days, December USD Index futures have lost 4.4% of their value. This is a major downturn and one that speaks to a massive spike in the U.S. money supply. Going into 2021, it’s tough to see any change to this course of action. Here’s why:

• Fed: Talking points from the Fed suggest that no rate hikes are on the way until 2023.
• Stimulus: Reports are circling on Capitol Hill that a $900 stimulus bill may be passed by the end of this week. Among industry insiders, huge COVID-19 relief packages are expected in 2021.

At this point, it’s tough to determine where the bottom of the USD Index market is. However, at least for the immediate future, more weakness is extremely likely.

USD Index Closes In On 90.000

The chart below is a last look at December USD Index futures. Traded volumes have already rolled over to the new front-month contract (March 2021) as this one is set to expire in the coming days. 

Overview: In a Live Market Update from Friday, I outlined a buying opportunity in the USD/JPY. The trade turned out to be a winner, producing 30 pips profit after taking some initial heat. If you got in on the action, well done!

For the USD Index, it’s all about QE and stimulus. As we move into 2021, each is poised to be a key catalyst for further devaluation of the Greenback. Unless inflation and economic growth explode, zero rates and Fed bond-buying are almost certain to continue.