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Dollar expected to be under pressure in May

May 8, 2021

Major currencies are likely to hold up well against any advance in the greenback this month amid vaccine rollout

The month of May has traditionally favoured the dollar. This year could be an exception.

The world’s reserve currency is trying to make a comeback after a slide in Treasury yields halted a three-month rally. But, the Bloomberg Dollar Spot Index’s weekly slow stochastics remain bearish and a relatively fast descent in the 200-day moving average is likely to add to the downward pressure.

Additionally, technicals suggest the euro, pound, Australian dollar and some Asian currencies are likely to hold up well against any advance in the greenback this month. The macro picture will also help, as a widening global vaccine rollout aids sentiment.

Here’s a look at a few currencies that are expected to outperform the dollar this month:

The Australian dollar's weekly momentum and relative strength indicators remain bullish even as spot’s gains have stalled. The currency pair is likely to resume its upswing after climbing a multi-point trend line off the November low, with the 200-day moving average offering the next level of support. A close above its March 18 high of 0.7849 puts the year-to-date peak of 0.8007 into play.

The pound’s upward momentum has eased somewhat in recent days but spot is likely to find strong support at its 100-day moving average. The currency pair has tested this rolling gauge on several occasions since September and still managed to close above the mark. There is also trend line support off the November low, after which the troughs in April and March will provide a base. If spot tops its April 20 high of 1.4009, this would represent a clear breach of the descending trend line resistance formed off the February high.

And it’s not just major currencies that are expected to prove resilient against the greenback. The Bloomberg JPMorgan Asia Dollar Index is poised to gain further at the dollar’s expense, with momentum turning higher after the April peak of 108.91 was breached. If the gauge closes above that mark again, the descending trend line resistance is likely to be tested as it heads for a new year-to-date high.