Aside from the epic rally in Bitcoin BTC or the COVID-19 recovery in equities, the downturn in the Greenback was the premier financial headline for 2020. Following a series of rate cuts and government stimulus, the USD Index fell to multi-year lows beneath 90.000. Thus far for 2021, it’s been a much different story. Bids have hit the dollar, sending USD Index futures back above the 90.000 handle. 

So, is the worst of it over for the USD? Not likely. The current fundamentals point to a stagnate or devalued dollar for at least the coming 12 months. Here’s why:

• FED Policy: The United States Federal Reserve (FED) is committed to achieving their new 2% average inflation objective. As they stated back in December, debt purchases of $120 billion per month are to stay in place for the intermediate-term. Also, there has been no talk of rate hikes until at least mid-2022. At the very least, we are looking at another six to nine months of extremely dovish policy. We’ll learn more at next week’s FOMC Meeting. 
• COVID-19 Stimulus: The incoming Biden administration has unveiled plans for a $1.9 trillion COVID-19 stimulus package. Included in the bill are direct payments to citizens, small business relief, a national $15 minimum wage and funding for COVID-19 support facilities. In reality, this is probably only the first of several stimulus packages for 2021.

These two factors alone are capable of holding the USD Index beneath 90.000 for an extended period of time. However, an extraordinary U.S. recovery coupled with explosive equities growth may prompt hawkish action from the FED. Nonetheless, when weighing the two scenarios, the USD Index is likely headed lower in the near-term.

USD Index Futures Rally To Kick Off 2021

Below is a look at March USD Index futures as of last week’s close. As you can see, the first two full trading weeks of 2021 have produced positive results.

Overview: As mentioned earlier, 2021’s FED calendar kicks off next Tuesday and Wednesday. No real shifts in policy are expected ― more talk of lagging inflation, COVID-19 uncertainty, and QE are extremely likely. While it looks like we may have a valid intermediate-term swing low at 89.165, I’ll be surprised if this level isn’t taken out by early February.