Reflation trading will remain in the markets in March

Von | 4 März 2021

Strategists bet on the weakening of the dollar in the long run

The dollar has been gaining recently, especially against the franc and the Japanese yen. However, analysts assume a weakening of the USD in the long run. Most Reuters polles believe that this month’s markets will continue to feature reflective trading.

The movements of the markets are to be dictated by reflective trading
Strategists are betting on the weakening of the dollar in the long run

The DXY index tests an important area of ​​resistance

Reflational trade and dollar depreciation

US Treasury benchmarks rose to the highest levels since the pandemic that began last week. The reason for this state of affairs is the improvement in expectations regarding the growth of the economy and concerns about inflation, i.e. reflational trade.

This dramatic rise in bond yields, which knocked global equities off record levels, has challenged overwhelming odds against the dollar.

However, currency strategists do not change their minds. There is still consensus about the overall weakening of the dollar this year, according to a recent Reuters poll of 70 Forex strategists.

Most of the respondents also believe that movements in the currency markets for at least a month will be dictated by reflation trading. More than half of them believe that this trade may continue for up to 3 months.

“There is a struggle between the valuation of reflation trading and central banks that just want to moderate the pace of optimism,” said Jane Foley, head of currency strategy at Rabobank.

“We’ve been through a period of struggle between bond markets and other central banks trying to keep things from getting too optimistic – during this period we can see that the dollar is a bit more resilient than consensus predicted,” Foley added.

The dollar rate respects the resistance

The US dollar in the DXY basket of currencies tested the resistance confluence on Tuesday. This is a horizontal area at 91.00 and a 100-day average.