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29.07.202017:10 EUR / USD: US loses battle against coronavirus while dollar sales may continue

Long-term review
Company does not offer investment advice and the analysis performed does not guarantee results.

Exchange Rates 29.07.2020 analysis

Although the market is full of rumors about the end of the era of the dominance of the US dollar, analysts at Barclays believe that the reserve status of the US dollar is now in no danger.

Upon arguments, the bank's experts cite the depth of the US capital markets, as well as the significant share of USD in global trade.

"Over the past years, central banks and investors have accumulated dollar assets. However, given the recent events, they decided to diversify their portfolios in favor of assets denominated in other currencies, "said Barclay's specialists.

They predict that in the near future the USD rate will decline amid further diversification of portfolios.

"The USD index, as well as the EUR / USD pair, have broken through important support / resistance levels. This attracted large long-term players who will sell the dollar for some time to come, "Barclays said.

Another threat to the greenback, according to experts, is the US presidential election, which will be held in November.

"The risks associated with the US presidential elections, apparently, have not yet been fully taken into account in the quotes. At the moment, investors' attention is focused on the fight against COVID-19 in the United States and the economic impact of the pandemic, "said strategists at Barclays.

"The swap lines that the Fed established with other central banks at the height of the coronavirus crisis have flooded the world with dollars. Along with a sharp cut in interest rates in the United States, which caused the decline in the USD, "they added.

The USD index continues to hold near its lowest values since June 2018, around 93.4 points.

Investors remain concerned about the uncontrollable spread of COVID-19 cases in the United States, which is casting a shadow over the prospects for the world's largest economy.

The pressure on the greenback is also exerted by the uncertainty regarding the next package of assistance to the US economy.

Republicans reported disagreements over their own $ 1 trillion bailout plan on Tuesday, while negotiations with Democrats also stalled.

Throughout the past week, the EUR / USD pair was in the overbought zone, but this did not prevent it from growing to the highs since September 2018, after which it slowed down its growth.

The decision of the EU leaders to create a fund for economic recovery in the region continues to support the euro.

With regard to the epidemiological situation in Europe, outbreaks of COVID-19 in some parts of Germany, Spain, and France remain local so far.

As analysts at Credit Suisse note, there has been a pause in the upward movement of EUR / USD, however, in light of last week's close above 1.1495 and the formation of a base on the medium-term charts, the pair's prospects remain positive.

"In the near future, some consolidation should be expected from EUR / USD, but only if the level of 1.1580 is broken, it will be possible to say that the" bulls "have started to run out of steam and a deeper correction can be expected from the pair. In the meantime, the focus of attention remains shifted to the highs of September 2018 and 61.8% of the decline since 2018 in the area of 1.1815-1.1822. Ultimately, we expect to see a storm of the bottom of the 2018 reversal top at 1.2155, "said strategists at Credit Suisse.

Performed by Viktor Isakov
Analytical expert of InstaForex
© 2007-2020

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