The dollar is likely to start a bearish cycle in case the Democratic candidate Joe Biden wins in the next month’s elections, analysts believe.Fundamental analysis: Dollar remains vulnerable
The U.S. dollar remains vulnerable to “substantial devaluation” as the fundamental aspect of the market points towards a deeper pullback, warns Standard Chartered’s Eric Robertsen.
“You have the twin deficits in the U.S. getting worse, you have the trade balance at the worst in 15 years,” Robertsen said.
According to him, the outcome of the next month’s elections is likely to determine the dollar’s path for the next few years. A win of the Democratic candidate Joe Biden could eventually lead to the dollar devaluation trend in the next few years.
For weeks, analysts have been arguing that the dollar may be in for trouble if Biden wins. On the other hand, Donald Trump’s could make the price action “a little bit more messy in the short term,” according to Robertsen.
“If you were to see a reversal of that — either because of global trade or a change in the United States’ domestic economic agenda — and combined with the fact that the U.S. no longer has an interest rate advantage over its G-10 peers, I think you can make a very compelling case for a multi-year dollar depreciation,” he said.
Robertsen’s notes are echoed by economist Stephen Roach, who believes the dollar may see a sharp drop in 2021. He forecasts a 35% decline in the greenback by the end of 2021.Technical analysis: Multi-year lows eyed
The dollar index (DXY) closed the week over 1% lower to mark the biggest weekly losses since July. Investors are increasingly confident that Biden is likely to win elections, which will add significant pressure on the greenback.The dollar index weekly chart (TradingView)
Biden’s win could push the dollar below August’s low towards April 2018 levels $91.70 with the $91 mark the first bigger target on the downside. Still, the $92 handle is likely to offer significant support to bulls.
A more extreme scenario assumes a move lower to multi-year lows at $88.30, which would translate into $1.25 for EUR/USD. Click here to compare best forex brokers with free demo accounts.Summary
Analysts believe that Joe Biden’s win in the next month’s elections may make the U.S. dollar significantly vulnerable in the next few years.
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