12.08.202013:22 Forex Analysis & Reviews: EUR / USD: dollar prospect still uncertain, euro continues to be in demand during downturns

The USD Index sank 9% from a three-year high reached in March, and lost 4% in July alone. Many experts are now wondering whether the support for the US dollar in August is a rebound or a pause in its decline.

"The greenback's fall seems to have been interrupted for the moment. Although negotiations on budget spending in the United States have reached a dead end, the Americans have managed to avoid a complete cessation of the payment of additional unemployment benefits, "said analysts at MUFG.

"Increased tension in relations between Washington and Beijing may provide temporary support to the dollar, but this is unlikely to be enough to offset the downward pressure on the US dollar," - said experts at the Commonwealth Bank of Australia.

After seven weeks of almost continuous decline, the dollar managed to strengthen slightly thanks to the better-than-expected result of the US labor market for the month of July.

"Although the result has exceeded expectations, it eases the pressure on American policymakers who must immediately agree on another package of assistance to the national economy," strategists at ING said.

They also added that, "Most likely, the US employment report for August will be worse, as the economic impact of repeated quarantine measures will affect."

On Monday, White House officials and Democratic representatives in Congress pledged to resume talks on a new stimulus package. This comes after US President Donald Trump signed a series of executive orders over the weekend over the fight against coronavirus.

According to Thomas Barkin, the head of the Richmond Federal Reserve Bank, a recession of historic proportions could take a worse turn if another package of financial assistance to workers and companies affected by the COVID-19 pandemic is not adopted.

The EUR / USD pair has been supported recently by the fact that the Eurozone is much better at coping with the economic downturn caused by the coronavirus than the United States.

However, at the moment, the "bullish" momentum in the pair is fading away against the background of a slight increase in demand for the dollar.

Although the formation of the double top significantly slowed down the upward trend from a technical point of view, the breakout of the trend line at 1.1710, as well as the transfer of the initiative under the control of sellers, did not take place. Thus, the main currency pair indicated the mood to remain in consolidation (possibly until the terms of a new fiscal deal in the United States become known).

"The upward momentum in the EUR / USD pair has weakened somewhat, which is associated with increased interest in taking profit after the rally," said JPMorgan.

According to the latest CFTC data, the euro speculative net long has reached a five-year high.

"This may serve as a deterrent for EUR / USD in the short term, but the pair continues to be in demand during the downturns. Therefore, we advise to consider attempts at correction below 1.17 as opportunity to make purchases, "- noted experts at JPMorgan.

"Estimates of the prospects for the American economy may change under the influence of incoming data. However, until the virus in the US is defeated, uncertainty will remain, which means that the balance of the Federal Reserve will grow in the foreseeable future, which, as history shows, leads to a steady weakening of the greenback's position, "they added.

"Investors are likely to continue to seek to buy back the fall in EUR / USD. At the same time, the 1.1700 area will act as a good short-term support. We do not think that the decline in quotes will be threatening for long positions in the euro until a break below 1.1650 occurs, "strategists at BMO Capital Markets said.