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Euro selloff supported safe-haven dollar amid positive sentiment - ZFX

Euro selloff supported safe-haven dollar amid positive sentiment

02-02-2021 09:50

Optimism backed?

Stocks in Asia-Pacific jumped on Tuesday, following the momentum of Wall Street overnight. Stepping into European trading session, positive sentiment maintains and European stocks generally opened higher.

However, overall speaking investors are still cautious, keeping an eye on the progress of global economic recovery. On the other hand, vaccination rollouts are ongoing, boosting market confidence. Furthermore, the lockdowns over those European countries have been a while and have started to lower the increasing rate of new infections. Such optimism has already pushed up those markets, especially under bullish situation.

ZFX analyst Jacob Leung said that there is no doubt that the markets are very volatile. But, we can see the corrections in the stock markets were very short term, which means overall the sentiment is bullish.

US stock futures are trading higher on early Tuesday session. Traders now are calming down a bit regarding the “GME” issues – The frenzy retail investors trading versus hedge funds short.

Dollar index is still approaching 91?

Despite a bounce-back session, dollar maintains at a relative high level, that dollar index is hovering near a seven-week high on Tuesday. This safe-haven is benefited from a euro selloff overnight. One of the reasons is that lockdowns over those European countries are proved to hurt the economy, showing in the Germany retailing figures of Dec.

ZFX analyst Jacob Leung said that another reason is, probably the most important one, investors are worrying the slowdown of consumer spending will put pressure on ECB to implement aggressive policies in the coming months. As mentioned last week, ECB is now considering the strength of euro will have negative impact on the Eurozone recovery.

Technically, EUR/USD should have strong support above 1.2. If there is a downward breakout, the outlook of euro would be quite bearish in Q1.

ZFX analyst Jacob Leung said that, furthermore, the rollouts of vaccination are a bit struggling in the European countries, that may weigh on the investor sentiment of euro.

Many traders earlier have already bet on the downtrend of dollar based on the widely expected fundamentals. However, the Biden administration’s proposed 1.9 trillion stimulus is still uncertain, so that the dollar selloff was not a main theme these days in the FX market. Also, there was no surprise for the FOMC last week, sparking some short covering these days.

ZFX analyst Jacob Leung said that as mentioned before, traders actually expected “more” from Fed. The outcomes of FOMC to some extent disappointed those short positions of dollar. If EUR/USD can’t stand at 1.2 level, the downward target would be as far as 1.16.


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