24.06.202009:57 Forex Analysis & Reviews: Dollar at the crossroads: EUR/USD's strength and weakness

The US currency continues to be in demand. Earlier, the dollar unconditionally dominated the EUR/USD pair, but now, the situation has changed. It has to deal with severe overloads, then suddenly rising, then sharply declining to critical values.

The current situation is complicated by the problem of choosing the future path of the US currency. According to experts, the dollar is now at the crossroads between a potential decline and substantial growth. Two camps formed among market participants: supporters and opponents of the weakening USD. Each of them is right in their own way, relying on the current state of the financial market in their calculations.

The European currency feels relatively stable in the world market. Support for the indicated currency is provided by financial assistance programs initiated by the Eurogroup and the leaders of several European countries. Analysts emphasize that the key for the euro and dollar remains the problem of the early restoration of economic growth. Experts draw attention to the active actions of European leaders aimed at stimulating it and complemented by an aggressive monetary policy of the ECB. The current situation favorably influenced the dynamics of the Eurocurrency, which cannot be said about the US currency. Analysts say that the current monetary policy of the Fed may jeopardize the further strengthening of the dollar.

A signal for the market is the fact that many central banks no longer require a large amount of US currency. According to experts, the global US dollar deficit recorded at the beginning of the COVID-19 pandemic has declined. According to the Fed, last week, global regulators requested a minimum amount of dollars over the past three months. This has become a strong impulse for actively reducing the Fed's balance sheet by $ 7 trillion. According to analysts, this is recorded for the first time since February 2020.

The worsening problem in the financial market prevents the stabilization of the EUR/USD pair. This week, the pair experienced sharp ups and downs, due to which it did not immediately come into equilibrium. On Tuesday evening, June 23, the EUR/USD pair was trading at the level of 1.1311. Later, the pair managed to slightly rise. On Wednesday morning, June 24, the EUR/USD pair started at 1.1317 - 1.1318, but slightly declined a bit later.

Citi's currency strategists are optimistic about the EUR/USD pair. They expect attempts to storm the resistance level near 1.1500. According to the bank's forecast for the next three months, this currency pair will be able to reach the level of 1.1400, and it will rise to 1.1600 in 6-12 months. In the long run, Citi experts expect them to return to the level of 1.2000. Analysts expect further growth of the EUR/USD pair, but consider the ECB's monetary stimulus insufficient as compared with the Fed's infusions. At the same time, Citi is confident that the actions of the Federal Reserve in the long-term will lead to a weakening of the US currency.

One of the significant factors in weakening the dollar may be the problem of choosing a further path. At the moment, the USD is "hovering" between two lights: a high probability of a collapse and the hope of a rise. The opinions of market participants regarding its future fate were divided. Supporters of the collapse of the US currency believe that its current weakening will continue against the backdrop of growth in US stock indexes and the Fed's policy of reducing rates and aggressive quantitative easing (QE). Other "provocateurs" of the potential collapse of the USD may be the unstable domestic political situation in the United States and uncertainty before the presidential election.

The opponents of the weakening of the US currency are confident that its subsidence will be insignificant and temporary. This is facilitated by the relative normalization of the foreign policy situation, as US President Donald Trump has moderated his ambitions for China a little. However, troubles can await America from the other side: trade tension with the European Union is on the agenda. This issue remains relevant. The White House does not exclude the introduction of new duties, because of which the situation will become tense, and the dollar and the euro will be under attack again. However, there is a blessing in disguise: the negative foreign policy situation and the increase in the number of patients with COVID-19 in the United States may cause a surge in demand for safe haven assets, primarily for the dollar.

According to analysts, no matter which way the dollar goes - weakening or strengthening, it will remain the leader in the financial market. Experts are confident in the stability of the leading world currency and in its colossal recovery ability, thanks to which the USD can survive the global dollar crisis and the total recession in the global financial system.