Does Vaccine Magic lead to an imminent US Dollar Collapse?

Assets Covered: USD, EUR, WTI

This week, markets saw news of the 2nd US-based vaccine for Covid 19. The results are encouraging, and markets have welcomed the news. The results of these two announcements are so exciting, in fact, that the S&P500 is up 10% in the first two weeks of November. Vaccines seem to be magical for markets.

((As a side note, if you’d like to learn more about vaccines in the US, here’s a quick recap of how various presidents have dealt with infectious diseases and vaccines. John Adams was the first to be vaccinated, but it happened in 1764 — well before his presidency.))

Vaccines are, naturally, the longer-term cure for our pandemic and economic ills. Excitement aside, it takes time to further test, develop and distribute a vaccine. We’re told by experts that it likely won’t make a major difference until the end of 2021. That doesn’t make the vaccine news any less exciting, but it does damper the immediacy of the expected payoff in markets.

This level of market excitement is only possible through synthetically generated central bank intervention and monetary policy. It’s important to know that between March 2 and today, the US money supply (M2) has grown 22.5%, from $15.4trn to $18.9trn. In that time, the Fed has effectively added money supply equivalent to Germany’s entire economy ($3.4trn). That’s a lot of berliinerbols!

We’ve seen some interesting performance in line with Fed monetary actions:

  • The S&P 500 has risen 47.2%
  • Copper has risen 53.6%
  • Gold has risen 27.5%

With a Fed actively fighting to de-risk markets and vaccines arriving (eventually), there is a view that the US Dollar may soon lose ground as investors regain 2019’s risk appetite and dump US assets for riskier opportunities overseas.

While this may be possible, we just don’t see it. Our AI platform tells us to expect a relatively flat US Dollar through Q1 with a very slight upside possibility. At the same time, we see the Euro relatively stable with a slight downside likelihood.

CHRIS/ICE USD Index Futures (DX1) / EUR/USD Rate Forecasts through March 2021CI Futures generated this chart. Book a demo to see it live in action.

Over the same horizon, we believe we’ll see a false start for crude markets. The excitement for possible resumption of travel and other “return to normal” activities may pull crude higher at the start of the year. However, as Chinese New Year hits, the expected pace of vaccine rollouts become reality and corporate spending remains risk averse, we expect crude to fall back near the current levels.

NYMEX WTI Crude Oil Futures (CL1) Forecasts through March 2021CI Futures generated this chart. Book a demo to see it live in action.

While the development of a vaccine is clearly important for our public health issues, it’s not magic for markets.

This CI Newsletter is originally published at
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