FX.co ★ Dollar is in the midst of corrective recovery

Some recently implemented high-profile short-squeezes determined the growth of the volatility of the US stock market, which, in turn, acted as a growth driver for the US dollar relative to other major currencies. The S&P 500 VIX volatility index has been above 30 points for the past few days, and this provokes a reduction in leverage in the US market and supports the US dollar.

World markets are not showing significant declines yet. The US stock indices and the global stock markets showed a steady growth on Monday. Both the S&P 500 and MSCI Asia-Pacific gained more than 1.5%, while the Nikkei 225 managed to climb 0.8%.

It should be noted that at the beginning of European trading on Tuesday, the US dollar showed a decline, slightly retreating from the previously reached maximums. Investors' appetite for risk, and then the sell-off of the US dollar were identified Monday evening and are primarily associated with the promotion of the stimulus package for the American economy. Thus, representatives from the Democratic Party filed a budget proposal totaling $1.9 trillion to bypass Republicans in accepting the assistance package from COVID-19, which was proposed by President Joe Biden. The budget proposal was passed when Senate Republicans visited the White House to discuss an alternative plan to cut spending by $618 billion. Risk appetite increased markedly after the news on Monday, and the dollar index plunged.

However, the USDX quotes traded into the green zone on Tuesday, which kept it not too distant from the peak of seven weeks. An important factor behind the growth of the dollar was the weak data on retail sales in Germany, which significantly depressed the euro. The decline in the euro was noted on Monday when it became a real outsider of trading. The quotes of the single currency were not saved even by the revision of the indicators of business activity in the eurozone, which showed an increase. The main obstacle to the growth of the currency was the fall in consumer demand. The fall in retail sales in Germany in December was much stronger than analysts' forecasts. This is due to the restrictive measures that the country's authorities tightened in December.

Based on such news, the foreign exchange market implements the following chain of actions: investors think about selling the euro - the US dollar is being bought. The dollar index against a basket of six major currencies, as a result, by the time of this review, increased by 0.14% - to 91.153.

Apparently, the dollar is in the midst of its corrective recovery, and this rarely goes along with a steady strengthening of global stock indices. In other words, the dynamics of the US dollar observed on Tuesday gives rise to great doubts about the strengthening of markets.