The Comeback of the World’s Reserve Currency

FXOpen

The U.S. dollar, the world’s reserve currency, is having a remarkable comeback. It gained ground against all other major currencies (e.g. EUR, GBP, CHF, AUD, CAD) and it looks poised to strengthen even more.

With only a few weeks ahead of the U.S. elections, the market participants will likely take some risk off the table. This can translate either in booking profits on the trades that dominated the markets after the pandemic reached the Western world (e.g., short USD) or being forced to close some positions because of an increase in margin levels due to the upcoming elections.

In both cases, the USD looks to benefit, especially if we consider that the Treasury is hoarding more USD than the Fed is printing. Hence, the USD liquidity shrinks, favoring an even higher USD.

The Comeback of the World’s Reserve Currency

Straight Line Towards the U.S. Elections

The week ahead is marked by Christine Lagarde testifying in front of the European Parliament and the NFP on Friday. But just like last week’s Powell’s testimony was ignored by the market, the chances are that the same will happen this week with Lagarde. Not even the NFP matters anymore, as the markets focus on the biggest event ahead – the U.S. elections.

The race is tight, and no one knows how it will end. When asked if he is ready for a peaceful transfer of power, Trump did not say yes. Moreover, he thinks it is possible for the presidential race to end up at the Supreme Court. Either one of the two scenarios will add to the market’s volatility, and many traders will be forced to cut their trading positions.

In times of uncertainty, investors look for safety in markets. The traditional safe-haven currency remains the USD, and the recent comeback should be interpreted as such.

The EURUSD eased from 1.20 to 1.16, the GBPUSD fell from 1.35 to 1.28 and the AUDUSD corrected from 0.73 to 0.7 – they all show a stronger USD. Moving forward, higher margin requirements for both currency and stock trading will cause further USD strength. To book profits on the USD short trade, one needs to buy it – the same is true in the case of stocks.

But it could also be that a higher USD is caused by the second wave of COVID-19 infections. Spain, France, Germany, but also the U.K. and the United States, see a spectacular rise in the number of new cases.

If the market participants believe that things get out of control, just as they did in March-April, we could see a similar USD reaction. Back in March, the EURUSD found support at 1.07 area.

Will it find support again?

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Stay ahead of the market!

Subscribe now to our mailing list and receive the latest market news and insights delivered directly to your inbox.

forex

Forex Trading with FXOpen

Forex Trading with FXOpen

Experience ECN technology for deep liquidity and light-speed trade execution

  • Access over 50 markets
  • Trade with spreads from 0.0 pips
  • Take advantage of commissions from $1.50/lot
Learn more

Latest articles

An Important Bullish Pattern Forms on the NIO Share Price Chart
Shares

An Important Bullish Pattern Forms on the NIO Share Price Chart

Today, the share price of NIO Inc. (NIO), a Chinese manufacturer of "smart" electric vehicles, is trading above $4 – a development that may be viewed as an optimistic scenario following the drop to $3 in the first half of April,

S&P 500 Chart Analysis Ahead of the Busiest Week of Earnings Season
Indices

S&P 500 Chart Analysis Ahead of the Busiest Week of Earnings Season

Despite the fact that President Trump’s earlier decision to impose tariffs (at higher rates than expected) shook the stock markets, the S&P 500 index (US SPX 500 mini on FXOpen) could still end April without significant losses

USD/CAD Consolidates
Forex Analysis

USD/CAD Consolidates

In the second half of April, the USD/CAD chart has shown a decline in volatility following significant spikes observed since February.

The Canadian dollar has stabilised against the US dollar within the 1.390–1.380 range over the

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 60% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.