What is the new trading logic under the Biden stimulus bill?

Photo: Wikifx

The US dollar index opened higher on Thursday and quickly turned down.

The US President-elect Biden will be sworn in as the 46th President of the United States on Wednesday, but the "anti-epidemic" assistance program will be announced later today. The economic stimulus package is said to be between $1.5 trillion and $2 trillion, focusing on vaccine delivery and increasing bailout funds to $1,400 per person. The dollar index opened higher on Thursday but has quickly turned down. The mild remarks of Fed Chairman Powell also encouraged the dollar bears. Powell said, "Not soon" to raise interest rates.

Dollar index

As mentioned above, the U.S. dollar index opened at around 90.27 that day, the highest touched 90.57 in early trading, and turned down before the London fix, and the lowest touched 90.16. Subsequently, the suppression in Powell's comments fell to 90.07. The US dollar index on Wednesday’s 4-hour chart seems to be breaking the flag pattern, but judging from the volatility on Thursday, the break at that time may be a false break. Of course, everything has twists and turns, and a fall will not be a vertical fall. However, if the price closes below 90.19 and the aforementioned flag shape may fail, the US dollar index may initiate a new downward trend, impacting the psychological price of 90.00. At this price, the dollar bulls may choose to re-enter the market. Thursday's high of 90.57 constitutes resistance.

Photo: Wikifx

USD/CAD

The US dollar/Canadian dollar began to fall back from its high point about 45 minutes earlier than the US dollar index, but it has been in a downward channel since the end of Oct 2020 and continues to weaken. After breaking the upper track of the channel on January 11th and hitting the 61.8% retracement level of the market from the high of Dec 21, 2020, to the low of January 6, the U.S. dollar/Canadian dollar continued to fall. The current test is on Jan 6. The daily low is near 1.2634. If it breaks below, or fall to the trend line support (red line) near 1.2605. If this position is overcome, the US dollar/Canadian dollar has a space near 1.2400 on the lower rail of the impact channel. Upside resistance is at 1.2700, Thursday's high, and bears may re-enter the market at an opportunity.

Photo: Wikifx

USD/JPY

The USD/JPY has traditionally followed the S&P 500 Index, but as shown in the associated chart below, the USD/JPY has recently followed the USD Index. The correlation coefficient between the two trading products is at a high level of +0.83. If it is reported at +1.00, it indicates that the two are perfectly synchronized. The USD/JPY 4-hour chart has been in a declining wedge shape since mid-November 2020, but broke the downward trend line on January 7. On Thursday, the dollar/yen weakened following the dollar index, falling from a high of 104.20 to 103.56 not far above the horizontal support level. If the USD/JPY declines, it may test the lower trend line and confirm the January 7th breakout as a false breakout. If the U.S. dollar index rebounds with the dollar/yen and rises to the recent high of 104.39, it may test the 104.75 resistance level.

Photo: Wikifx

After leaving Powell's mild remarks, the market's attention will turn to Biden's economic stimulus plan. The dollar index has been falling for a long time. But please be careful. After the announcement of the stimulus plan, the market may eventually show the result of "sell after hearing the rumors and buy by seeing the facts". Please pay attention to more volatility.

Reprinted from Wikifx, the copyright all reserved by the original author.