CNN Business/Julia Horowitz
Why the US dollar could be the big loser of 2021

The US dollar is on the back foot, and Wall Street doesn’t expect that to change any time soon.

What’s happening: The dollar has weakened by nearly 12% against a basket of top currencies since peaking in March. Last week, it hit its lowest level since April 2018. The last time the greenback was on the skids like this was 2017.

The slump can be explained by a few factors, strategists say.

Faith in the global recovery: When the US and global economy are performing strongly, the dollar — a safe-haven currency — tends to weaken. Right now, despite rising Covid-19 infections in many parts of the world, investors are putting their confidence in the imminent arrival of safe and effective vaccines, which they predict will create a boom of activity by mid-2021.

Central bank policy: The Federal Reserve has made clear it will keep interest rates low and keep printing money for as long as necessary to stimulate the US economy. That drums up faith in the trajectory of the recovery, feeding so-called “reflation” expectations. It’s also sending investors elsewhere in search of returns, hitting dollar demand at a time of high supply.

The upcoming Biden era: Tariffs have contributed to a stronger dollar in recent years, according to Mark Haefele, chief investment officer of UBS Global Wealth Management. Penalties on exports from countries like China raised geopolitical tensions, sending investors scrambling for sure bets. In disputes with countries like China, President-elect Joe Biden is expected to rely more on other tools. That’s a positive for global growth, and a negative for the dollar, per Haefele.

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Fox Business/Jonathan Garber
Euphoric stock market runs risk of buzz-kill without COVID-19 help

A sense of euphoria has taken over the stock market as the S&P 500 delivers the “greatest Wall Street rally of all-time,” according to Bank of America.

The benchmark index has surged 65% from its Mar. 23 low, buffeted by stimulus from both the Federal Reserve and Congress and the belief that the worst of the COVID-19 pandemic is in the rear-view mirror now that vaccines are on the way.

Investor bullishness is flashing a “code red,” wrote Michael Hartnett, chief investment strategist at Bank of America. He points to the firm’s proprietary Bull & Bear Indicator “accelerating toward extreme bullish” as well as dwindling cash levels that are nearing a “sell signal.”

Additionally, the latest American Association of Individual Investors Sentiment Survey showed bullish sentiment ticked up another 1.8 percentage points to 49.1%. The level of investors with a bearish outlook for the near-term was at the lowest in 11 months.

“The market could be in for an awakening if that fiscal relief plan isn’t passed soon,” wrote David Rosenberg, chief economist and strategist at Toronto-based Rosenberg Research.

With recess scheduled to begin on Dec. 21, failure to reach a deal before then would result in any aid package having to wait until after the new Congress is sworn in on Jan 3.

Lawmakers are weighing a bipartisan $908 billion COVID-19 relief measure that would further support the U.S. economy as it tries to rally from the sharpest slowdown of the post-World War II era.

Even if a deal is reached, the stock market will face another hurdle in January in the form of the two U.S. Senate seat runoffs in Georgia that will decide control of the upper chamber of Congress.

A win by both Democratic candidates would give the party effective control of the legislative branch with projected Vice President-elect Kamala Harris casting tie-breaking votes in the Senate, putting promised tax increases on the table.

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Marketwatch/Barbara Kollmeyer
The stock market is signaling a ‘severe’ drop is imminent, says contrarian strategist

This year’s recovery for equity markets in the face of a deadly pandemic has been remarkable, so a strong December would seem to follow.

But a “pretty severe” stock drop may have already started, if not a week or so away, warns our call of the day, from the True Contrarian blog and newsletter’s chief executive officer, Steven Jon Kaplan. He says there are plenty of signals flagging this if investors know where to look.

“What I notice the most is investors crowding into the stock market and making record inflows, while insiders have never been selling more heavily than they have done in November 2020,” Kaplan told MarketWatch in an interview and emails.

He notes “intense selling” across the board via J3 Information Services Group, a website that tracks company director buying and selling, known as insiders. That means “most knowledgeable investors realize that some big drop is coming…and they’re preparing for it by reducing risk,” he says.

Kaplan says “a lot of things are going to be dropping by 30% or 40%,” and believes we are in a bear market, so suggests looking at pullbacks between 2000 and 2003 for an idea of what’s ahead.

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Yahoo Finance/Inna Rosputnia
Is Gold Bullish Again?

Gold was a safety hedge in an uncertain world. There is no surprise we saw a massive sell-off with Covid vaccines being announced. Both vaccines are still waiting on final FDA approval. The real game-changer however could be Johnson & Johnson’s vaccine which only requires one shot and no special refrigeration outside that already widely required for current vaccines. Johnson & Johnson are expected to have interim data on its vaccine sometime in January which could mean emergency use authorization as soon as February.

So overall the vaccine news is still very promising. However, the damage to the economy is already done and it will take years to recover after COVID. Despite massive stimulus key economic data is very weak.

Gold was unable to rally even with a weak dollar. It seems last week metal finally rebuilt its correlation with the greenback. MA200 turned out to be a buyers zone. But is it a jerk reaction or gold is trying to start a new wave to the upside?

Formation of higher low or kind of base formation is needed to have confidence in buying gold. However, we already can identify a bullish setup

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