Today we shall take a look at the EUR/USD currency pair. After reaching a third consecutive peak last week, the trend once more retreated from that high. The events this week will determine whether the rate will continue its downward correction or attempt a new bullish rally.
The recent behaviour of the European single currency has raised a valid question: is the EUR/USD rally the result of a proper strengthening of the euro, or is it just a reaction to the weakened dollar? Considering that the euro has only appreciated significantly against the USD and the JPY, both safety assets, and has failed to wrestle more ground from the likes of the British pound or the Australian dollar, it seems the answer is that dollar weakness is what is driving this pair’s rally. Certainly, the EUR brought its own support factors to the table, in the form of stimulus plans from the European Commission and the ECB, but those are running out of steam. The recent increase in coronavirus cases in the EU have also dimmed the bloc’s prospects of recovery, as it seems for now some of the lockdown measures will remain in place. Though countries are not too eager to go back into full lockdown mode, the limitations on public gatherings, the cancellation of events and flights, quarantines for travellers, and stay-at-home work and education will most likely remain in use. Last Friday’s PMIs were disappointing, showing that the recovery in the service sector across the EU is not happening at a fast enough pace. Thus, the outlook for the euro has turned from optimistic to neutral, at least until we hear from the ECB in September.
The US dollar, on the other hand, is facing more serious challenges and seems to be gearing up for more weakness ahead. Fundamentals from the United States have been better than expected recently, showing that the economy is bouncing back, or that the forecasts were simply too exaggerated and too pessimistic. This more hopeful climate is bad for safe havens like the dollar and is driving demand away from it, causing its value to decrease. Nevertheless, all eyes will be on the Jackson Hole symposium this Thursday, as Fed Chief Jerome Powell and other economists will discuss the current situation online and offer more details about the future of monetary policy in the United States. Investors have some concern that the Fed’s QE program can have a negative effect on the financial markets in the long term, especially if it is not phased out carefully enough. In other words, the dollar remains in trouble and will most likely be weak for the time being.
In terms of the daily chart, today we have a pivot point for the pair located at 1.1797, with the price currently trading above it. The daily support levels lie at 1.1787 and 1.1777. The daily resistances are located at 1.1807 (overcome) and 1.1817. The indicators of technical analysis are mixed but lean towards recommending a sell position today.
