The U.S. stock market has reached new highs and celebrated its arrival in the White House. The S&P 500 index, which has been hovering around 3800 in the past two weeks, has taken a big step towards the 3900 mark, led by the technology, communications services and consumer discretionary sectors.
At the time of the author's writing, the S&P 500 index futures continued their rally, but its 14-day relative strength indicator once again touched the 70 overbought line.
In general, considering the expectation of the US to increase stimulus and the Fed's easing stance, US stocks still have room for further growth this year. As the new administration implements new policies to contain the epidemic, the US economic recovery may accelerate.
The dollar may resume its decline
The focus on Washington did not end with yesterday’s presidential inauguration-the Senate may vote on Yellen’s nomination as Treasury secretary later today.
Earlier this week, Yellen stated that the value of the U.S. dollar should be determined by the market, which is a significant change from the weak dollar policy pursued by the Trump administration; but Yellen did not express support for the strong dollar policy of the mid-1990s.
Yellen did not endorse the strong dollar, and the short position may have reason to push the dollar back to the downward channel. Many traders have shorted the dollar. Of course, they must first wait for U.S. Treasury yields to fall back, and the Fed meeting next week may become a catalyst for bearish action.
The European Central Bank expected to stand still
The European Central Bank held an interest rate meeting today, and the central bank is expected to maintain its loose monetary policy under multiple risks. Increased blockade measures, slower-than-expected vaccination progress, and political instability in Italy constitute major obstacles to the EU’s economic recovery.
The above-mentioned problems have also put pressure on the euro. This year, the euro has declined against all G10 currencies other than the Swedish Krona. However, the euro against the US dollar continued to trade near the highest level since 2018. Based on trade-weighted exchange rates, the euro is close to the highest level in history. A weaker euro helps the European Central Bank to reach its post-epidemic inflation target more quickly.
Taking into account that the euro accounts for 57.6% of the weight of the dollar index, coupled with Yellen's relative "let go" attitude towards the dollar, the performance of the dollar index in the future may be greatly affected by the euro.
