- Summary:
- The US dollar index is getting oversold as investors remain extremely negative on the currency. According to HSBC, the currency could bounce back in 2021
The US dollar index (DXY) is still under pressure as the overall risk-on sentiment remains in the market. The index is down by more than 11% in the past few months and trading at the lowest level since April 2018. It is also just a few points above $90.00.
The US dollar has fallen substantially because of the overall movement to other currencies as global risks ease. We now have a Covid vaccine and the Tariff Man is about to exit the US presidency. Also, there is a possibility that tensions between the US and its foes and allies will improve during the Biden presidency.
As a result, many analysts have turned bearish against the dollar index. Like I wrote on Wednesday, Goldman Sachs believe that the dollar will drop by 6% in 2021 while Morgan Stanley believe that it will drop by 10%. JP Morgan’s analysts are also bearish on the currency.
HSBC is taking the opposite view. In an interview yesterday, Paul Mackel, an analyst at the bank said that they believe that the dollar will strengthen in the coming year. He cited the overall shift from the risk-on sentiment to risk-off as focus shifts to specific countries. For one, in 2021, investors will start thinking about sovereign debt, which has soared this year.
US dollar index technical outlook
On the four-hour chart below, we see that the dollar index has been sinking recently. At the current price of $90.64, the price is just $0.64 above $90.00. It remains below the Ichimoku cloud and the short and long-term moving averages. The Relative Strength Index (RSI) has also dropped to the overbought level.
Therefore, in my view, it will possibly get worse for the DXY before it gets better. This means that the price will possibly move below $90 and then rally as we head into 2021.
DXY technical chart
