HomeWhat Lies In the FX Trading Week Ahead?

What Lies In the FX Trading Week Ahead?

Inauguration week has arrived as Wednesday the President-elect Joe Biden will start his four-year term in the United States. The events at the Capitol at the start of the year show a country deeply divided, so one of the biggest challenges for Biden’s administration will be to unite the country. 

Trump’s legacy is one of the conflicts, both internal and external, but also a higher trade deficit despite tariffs imposed on products from China, for example. As such, the Biden era promises to return things to normal, just as they were during the eight years of Obama’s presidency.

BOC and ECB to Announce Their Monetary Policy Decisions

From a monetary policy point of view, this week is the first one in the new year that brings some important events. On Wednesday, the Bank of Canada (BOC) announces its monetary policy, and, one day later, the European Central Bank (ECB) does so too.

The Canadian dollar and the Euro were one of the currencies that appreciated the most in 2020. After the price of oil settled in negative territory last year, the Canadian dollar bounced together with the oil price. The Euro bounced as well, from the 1.07 area to over 1.23 against the dollar.

So far in the trading year, both currencies eased from their highs. For example, the EURUSD trades now 1.2070 and has a bearish tone, despite the fact that the M2 money supply in the United States grows at unprecedented rates.

The stock market in the United States is closed today due to the Martin Luther King holiday, so the focus remains on the London session. The recent bid on the dollar, seen on multiple currency pairs, is not seen in the stock market. Last year, the stock market and the dollar moved in a perfectly negative correlation. More precisely, the higher the stock market went, the more the dollar dropped. So far in the trading year, the correlation does not hold anymore. Is it possible to see a higher dollar in 2021 and even higher stock market prices?

Yet, it is. If anything, traders have an example right in front of their eyes. Since the 2020 stock market meltdown, the Japanese stock market rose over 70% from the lows. Yet, at the same time, the JPY appreciated as well. Therefore, we should not be surprised to see something similar with the dollar in 2021.

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