14.10.202014:37 Forex Analysis & Reviews: Dollar strengthens, while euro and pound risks further fall

The greenback managed to strengthen and move away from three-week lows on Tuesday. Risk sentiment eased after U.S. companies Johnson & Johnson and Eli Lilly announced that they had suspended trials of the coronavirus vaccine.

Meanwhile, House Speaker Nancy Pelosi said that President Donald Trump's proposal on the stimulus package was not able to meet expectations. Thus, against this background, the USD index gained almost 0.5% and reached 93.6 points.

On Wednesday, the greenback managed to retain its previous advantage over its main competitors. At the moment, the hopes that politicians in Washington will reach a compromise on a new stimulus package before the presidential election slowly fades away.

If the divisions in Congress continue, then it is most likely that negotiations on the stimulus package will once again lead to a dead end. This makes the Republicans keep a good chance of keeping the Senate.

According to experts, such prospects and the associated uncertainty create excellent prerequisites for the decline in stock indices and support the USD.

"Many factors point to the growth of the dollar. Incentives in the U.S. can appear only after the elections. At the same time, there is no reason to buy euros and there are many long positions in EUR that need to be closed, "- said strategists at Mizuho Securities.

Analysts believe that in the short term, the dollar will strengthen as a safe asset. At the same time, a new wave of coronavirus and quarantine restrictions will hamper economic recovery in Europe, putting pressure on the euro.

"The euro closed in positive territory last Friday, but yesterday it surrendered most of the gained positions, sagging more than 0.5% to $ 1.1744. This was the strongest daily decline in nearly two months. If the bearish momentum intensifies, testing the $1.1680 level will not come as a surprise," said UOB specialists.

The EUR / USD pair continued to decline on Wednesday and is already trading at new multi-day lows amid cautious market sentiment and continued demand for a protective greenback.

OCBC bank believes, "The main currency pair has retreated from two-month highs and remains bearish. After the breakdown of the 1.1800 support, the pair may aim at 1.1700, and its breakdown will accelerate the fall."

France is breaking records for the number of cases of COVID-19, which brings the issue of introducing a lockdown in the country back to the agenda. Germany again entered the top 15 in terms of daily increase in cases of coronavirus infection. In this regard, the U.S. no longer looks so unambiguously bad, which strengthens purchases of the dollar against the euro.

Against the background of the strengthening of the greenback practically across the entire spectrum of the market, the pound fell to weekly lows near $1.2870. In addition, sterling also suffers from concerns about the lack of progress in trade negotiations between the UK and the European Union.

"It is in the interests of both parties to conclude an agreement before the end of the transition period. However, this cannot happen at all costs. The coming days will be decisive, "said Charles Michel, President of the European Council on Tuesday.

According to Bloomberg, the current position of EU leaders is that progress on key issues for the alliance is not enough to conclude an agreement. In addition, the heads of the EU countries plan to step up preparations for a tough Brexit.

"The GBP / USD pair climbed to 1.3070 and then pulled back. It still risks falling to 1.2445 and further to 1.2250 and 1.2200. Only a rise above 1.3083 will neutralize the bearish outlook," said Commerzbank.