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The week on the currency market ended traditionally for the US dollar. It continued to decline, which lasts four consecutive weeks according to the dynamics of the ICE dollar index.
This behavior is characterized by a not so unambiguous direct recovery of the world economy, but still stable. This applies not only to Europe and the United States, but also to Australia and New Zealand, which are still negatively affected by the coronavirus pandemic. Yes, of course, in the conditions of coronavirus pressure, the dollar was perceived – this was especially noticeable in the spring – as a safe haven asset along with traditional instruments such as the Japanese yen, the Swiss franc, gold and government bonds of economically strong countries, primarily American ones.
But it should be admitted that over the past four weeks, the dollar has been steadily losing against a basket of major currencies. The reason for this was the publication of data on the American economy, which, despite the obvious second wave of COVID-19, shows a recovery. It can be noted that in the context of large-scale and unprecedented stimulus measures from the Federal Reserve and the US Treasury in the process of economic recovery, which will continue in any case, faster or slower, the dollar will weaken more and more, since in this situation, it is its fundamental weakness that will outweigh all other local fears caused by the pandemic.
We believe that this trend will continue in the short-term, and a sharp decline in the dollar will begin with the invention of the vaccine against COVID-19 and confirmation of its effectiveness.
In addition, pressure on the "American" rate from the basket of major currencies was exerted by the euro, which received support not only against the background of broad stimulus measures from the ECB and hopes, but also that a decision on the EU Recovery Fund will be made this weekend, negotiations on which at first were stumped, and then in fact, they failed. This may have a negative impact on the euro rate and force it to correct downward in the coming week.
This week, the focus will remain on the topic of coronavirus, but the market will also closely follow the publication of economic statistics, primarily in America. If it continues to demonstrate generally positive dynamics, this will continue to exert pressure on the dollar rate. Undoubtedly, the Fed's meeting on monetary policy will not go unnoticed, which will begin on Tuesday, and on Wednesday, a regulator's report will be presented and a traditional presentation by J. Powell will take place at a press conference. Also on Thursday, GDP data for the second quarter will be released, which is expected to be extremely negative,but we believe that the market is already aware of this and will post the prices, so will continue with great interest to follow the values of the income and expenses of Americans last month to understand whether the recovery of demand in the country or not.
Forecast of the day:
The USD/JPY pair continues to trade in the range of 106.65-107.55 amid the continuing uncertainty of the impact of the coronavirus pandemic. The pair is likely to stay in the range further, only correcting to its lower border if it declines below the level of 107.25.
Gold is trading in the range of 1795.15-1812.40 after reaching a local high. We expect that it will continue to move in the range today, swaying in the wake of the uncertainty of the prospects of the post-pandemic world. We also believe that it will correct to the level of 1795.15 today, if it remains below the level of 1812.40.
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