05.08.202018:03 Forex Analysis & Reviews: EUR / USD needs technical correction

The massive sell-off of the US dollar continues and on Wednesday its decline strengthened. The dollar index dropped to last week's 2-year low at 92.53 and went lower at the moment. During the day, it lost 0.5% of its value. Judging by the latest movements, the dollar index continues to maintain a medium-term downward trend.

Now the US dollar is determined with further dynamics. Either it manages to rebound, or finally loses interest in the purchase.

The EUR / USD pair has seen new highs after fresh economic data from the eurozone gave investors confidence. Business activity in the region returned to growth in July. The upturn has been modest so far, which somehow impressed the markets. Meanwhile, US statistics testify to the existing problems in the country's economy.

According to the ADP report released on Wednesday, the number of jobs in the private sector in the United States for the month of July only increased to 167,000, sharply misses the preliminary expectation of 1.5 million. The quarantine measures that the government imposed in the face of a record increase in COVID cases played a role in this result. The release of weak ADP data put pressure on the dollar, as the likelihood of aggressive monetary measures in the US increased in September.

So, the chances of a new easing of monetary policy in America are increasing, which is not the case for the eurozone. Retail sales last month increased by 1.3% against the forecast of 0.5%. Moreover, the previous figure has been revised for the better. High-frequency indicators for the US economy indicate that July reports will be unsuccessful in terms of recovering two main indicators - employment and consumer spending. At the same time, Republicans and Democrats have not yet managed to agree on fiscal support, although progress in this direction has already been outlined.

If we compare America and Europe, the latter looks more promising economically. This could ultimately stimulate inflows into European ETFs like what we saw three years ago. The first stop on the way up is expected to be at 1.2000.

EUR / USD

The recent events on the financial markets indicate a reversal of the greenback towards long-term weakening. However, the sales are too aggressive, demanding a technical correction in the EUR / USD pair so that the US dollar could continue moving towards the equilibrium PPP rate.

The EUR / USD pair may be corrected to at least the level of 1.1600. A deeper decline is not excluded. However, this is not for long. Many experts are now betting on the growth of the euro, and they are unlikely to be mistaken.

An interesting picture is emerging for the Canadian dollar, which on Wednesday broke through the important reversal area of 1.3350-1.3300. This is due not only to the weakness of the American counterpart but to a greater extent to the jump in the energy market. World oil prices reached new highs and approached the highest levels since March 6. USD / CAD is the first pair from the G10 today, in which the greenback showed a new local minimum.

If the greenback continues to weaken, the next significant level for USD / CAD will be the psychologically important level of 1.3000. There is no chance for buyers yet. They will benefit only with a sharp rebound, which would have offset the decline of the last two days.

USD / CAD