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Buyers and sellers of the euro-dollar pair entered a new phase of their opposition. The coronavirus factor has recently played against the US dollar, whereas European countries, one after another reported a decrease in the number of cases and even a complete victory over COVID-19 (for example, Montenegro). The situation continues to worsen in the US, especially in the southern and western regions of the country. Meanwhile, Europe eventually found a way to organize financial assistance amongst its countries. Despite weeks of disputes, the Europeans were able to consolidate the positions of 27 countries and created a 750 billion economic recovery fund. While legislative initiatives on the allocation of additional assistance have been discussed in the US since May.
Such a "unipolar" fundamental background has been providing the EUR/USD buyers with tangible support for several weeks. Based on the daily chart, since July 10, the pair has been growing almost without a pullback, having risen 700 points in three and a half weeks - from the 12th to the 19th figure. Having reached two-year highs, the pair slowed down, as more powerful information support is needed to conquer the 19th price level. But the fundamental backdrop for the euro is gradually darkening primarily due to the increasing number of reports of coronavirus outbreaks in a particular European country.
The phrase "the second wave of the epidemic" in recent days is more and more common in the European press. The German doctors' union, in particular, believes that Germany is already going through the second wave of the coronavirus pandemic, while scientists from France predict a surge in the incidence in the autumn-winter period. In Spain, the incidence rate among the population increased from 7 cases per 100 thousand inhabitants at the end of June (when the period of strict quarantine expired) to 58 cases per 100 thousand population at the end of July. An increase in the number of cases was also reported in Switzerland.
And although not all experts agree that now we can talk about a second wave of the pandemic (most experts expect it in the second half of autumn), they all agree that the weakening of restrictive measures has led to local (so far) outbreaks of disease.
Against the background of such tendencies, the upward dynamics of the EUR/USD pair has noticeably weakened: the pair first retreated from the borders of the 19th figure, then could not stay within the 18th price level, and as a result floated in the area of the middle of the 17th figure. At this price boundary, buyers and sellers are fighting a positional battle: for the development of the southern impulse, the bears need to pull the price below the 1.1700 mark. In this case, the pair will sell even more actively, which will allow it to go down to the powerful support level of 1.1550 (the lower line of the BB indicator, coinciding with the Kijun-sen line on the daily chart). Buyers have the opposite task: the EUR/USD bulls need to at least return to the 18th figure in order to claim the 19th price level again.
In other words, at the moment the pair is at a crossroads, so to speak, on "neutral territory". The current fundamental background does not allow the euro to dominate the pair, but the dollar also looks quite helpless. Investors are clearly in no hurry to invest in the dollar, given the epidemiological situation in the United States and political battles in Congress, whose members cannot find a common denominator on the issue of additional financial assistance. At the same time, macroeconomic statistics now play a secondary role. It particularly became known today that the volume of industrial orders in the United States in June increased by 6.2% (on a monthly basis). And although here we are observing negative dynamics (in May this figure came out at around 7.7%), experts expected a deeper decline to 5.1%. However, traders completely ignored this release, indicating their position to the macroeconomic reports.
In my opinion, EUR/USD traders do not run the risk of opening large positions (neither for sale nor for purchase), waiting in which direction the pendulum will swing in the context of the spread of COVID-19. If new foci of coronavirus appear in Europe or / and signs of a second wave of the epidemic are clearly visible, the bears will be able to realize their ambitions by reducing the price to at least the base of the 16th figure. If the surges in the incidence continue to be local in nature (with a simultaneous increase in the number of infected in the US), buyers of the pair will have a good reason to enter the 18th figure.
On Monday, US President Donald Trump made a rather loud statement, saying that "the coronavirus in the United States is receding." According to him, the number of cases already decreased by 6% since last week. He added that there are also "small improvements" in the epicenters of the spread of coronavirus (that is, in the southern and western states of the country). Trump also noted that weekly rates of coronavirus cases in Arizona were down by 37%, in Texas by 18.7%, and in Florida by 21.2%.
At the same time, judging by the dynamics of the dollar index, the market became skeptical about Trump's statements. Moreover, the American press has already criticized Trump. According to some experts, the president took too short a time period to draw conclusions about any trends.
Thus, it is better to take a wait and see attitude on the EUR/USD pair now. The fundamentals are too ambiguous, so both buying and selling look risky. For the second day, the pair fluctuates within the 17th figure, but is actually marking time, waiting for an information driver. I believe that in the near future the pendulum will swing to one side, defining a mid-term trend.
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