The greenback rides on a downward spiral (Daily analysis 4.12.2020)

The US dollar weakness remains the main market theme as hopes for a fiscal deal in the United States keep equities elevated, and commodities advance after OPEC+ countries agreed to hike output by a mere 0.5 mb/day in January.

One of the leading beneficiaries of the US dollar weakness is the common currency. The EUR/USD pair's advance has accelerated sharply above the 1.20 mark, and the main currency pair trades at the highest levels since 2018.

Euro takes over even risky currencies

The euro has already gained 2% since the beginning of the month. Scope for further upside might be limited by the European Central Bank's reluctance to see a stronger currency despite weak greenback's fundamentals and benign risk environment, which pushes investors away from safe havens. The EUR/CHF pair is still glued to the 1.0850 area and stays elevated near pandemic highs, and the Japanese yen fails to benefit from the US dollar sell-off. The USD/JPY exchange rate hovers around the 104.00 mark. Although the cable (the GBP/USD pair) is close to long term highs at 1.35, the pound sterling trades somewhat weaker than its risk profile would suggest due to the uncertainty connected to the EU-UK trade deal negotiations.

The riskier, the better

The Scandies continue their stellar performance. The USD/SEK pair and the USD/NOK have both plunged more than 6% since the end of September. Roaring risk appetite gives a boost to the Antipodean currencies as well. Both the Aussie (the CAD) and the kiwi (the NZD) have reached the levels last seen in 2018 (trade above 0.74 and close to 0.71, respectively).

Emerging markets space trades bid as well. All but one among its major 25 representatives have posted gains against the greenback. The Brazilian real and the Russian ruble are leading the pack and continue to recover this year's slump. Nonetheless, The USD/BRL pair still trades over 25% higher than a year ago, and the ruble is evenly weaker against the basket consisting of the USD and EUR in comparison to the levels from the start of the year.

Conotoxia research team