03.06.202010:02 Forex Analysis & Reviews: EUR/USD: euro is experiencing a high point, while dollar has faded

The first summer month turned out to be surprisingly favorable for the European currency, which is not true for the American one. The dollar began to fall back throughout the spectrum of the market, making room for other currencies. Meanwhile, the euro took this opportunity, and is now experiencing its high point, analysts emphasize.

Strong support for the European currency was provided by the €750 billion financial assistance plan proposed by the European Commission last week. Thanks to this, the euro opened a second wind, and the currency entered the upward trend without difficulty. At the beginning of this week, the first day of summer, EUR made a noticeable price "jump", sharply moving up. The rise of this single currency occurred in the wake of increased risk appetite. On Monday, June 1, the single currency vector went to the levels of 1.1050 - 1.1100 and higher, and this trend continued by the middle of the week.

According to experts, the jumps and bounds of the euro upward, reflect optimism about the weakening of quarantine measures introduced because of the spread of the COVID-19 pandemic. Other impulses for the rise of the "European" were hopes for the implementation of an early economic recovery in the EU and a decline in tension over the escalation of the US-China conflict. As a result, on Monday, the EUR/USD pair rose 0.2% to 1.1132, and earlier the euro reached a two-month high of 1.1155. On Wednesday morning, June 3, the EUR/USD pair was trading around the range between 1.1207 - 1.208.

The persistent movement of the European currency to the next peaks did not escape the attention of analysts at ING Bank. Experts say that in case of consolidation above the levels of 1.2030 - 1.2040, the EUR/USD pair will continue active growth, which will lead it to the level of 1.2000 by the end of 2020. According to ING, this will be the final victory of the euro.

The winning March of the Euro, which started at the beginning of the week, continued towards its middle. On Tuesday, June 2, the single currency reached an 11-month high, taking advantage of the dollar's weakness. For the euro, which rose 0.4%, they gave $ 1.1178. According to analysts, this is the largest increase in EUR after rising to $ 1.1185, recorded since March 17, 2020.

Against the background of the growing euro, the dollar is trying to "keep its face" and prevent even deeper subsidence. However, a number of factors play against the dollar, including an increase in the degree of tension between the United States and China, as well as not too positive statistical reports. According to the research company IHS Markit, the purchasing managers' index PMI for the US manufacturing sector reached 39.8 points in May this year. This is slightly higher than the April value of 36.1 points.

The deepest economic recession in the US manufacturing sector set the stage for the dollar, although experts recorded the first signs of economic recovery. Obstacles to further economic growth in America may be difficulties in the labor market and the deterioration of most companies. A bright spot against this background is information from the ISM Institute. According to an analysis report, the May manufacturing PMI in the United States reached 43.1 points. This is much better than the April figure of 41.5 points.

Another key factor that could seriously undermine the dollar's position could be a decline in the level of confidence in the White House policy. Some market participants are not satisfied with the current financial system, the core of which is the US currency. Experts ask themselves: can the world exist without a dollar? There is no definite answer at the moment. In the context of the modern financial system, this is hardly possible. No wonder the Federal Reserve has worked for a long time to consolidate the dominance of the American banking system and maintain dollar liquidity at the highest level. This allowed the dollar to consolidate its superiority in the global financial system and in the world capital markets for a long time.

However, the reversal and the possibility of radical changes should not be ruled out. There is no alternative to the US currency, but many analysts are sure that this is not forever. In the event of the appearance of a currency exceeding USD, the throne under which has already staggered, the dollar will go into the shadows. One of the factors that will weaken this currency in the near future may be the oil issue. It can be recalled that the current subsidence of the shale industry in the United States had an extremely negative impact on the dynamics of the national currency. The dollar has also fallen due to some tensions between America and Saudi Arabia due to oil problems. It should be noted that black gold is still traded in dollars all over the world, and this makes all states dependent on the United States, causing dissatisfaction with the existing system.

According to analysts, the COVID-19 pandemic made significant adjustments to the current financial situation in the United States. To date, active support by the Federal Reserve for post-pandemic government spending by the US authorities has contributed to the politicization of the money supply. However, experts believe that the high probability of the dollar losing its dominant position is associated with the problem of trust. Now, traders and investors trust USD and the American banking system, so that the dollar holds a leading position. However, at any moment, everything can change, and then hard times will come for the dollar.

Nevertheless, if the White House administration manages to strengthen the national economy and maintain political confidence, the US currency will remain in the lead. Otherwise, the dollar will lose, although its status as a global currency will allow it to stay afloat for a long time. According to some experts, the further fate of the USD does not depend on the attitude towards the United States. One of the options for updating the global financial system may be the autonomy of the dollar as a single unit of calculation, but its complete independence is still unrealistic.