30.11.202016:06 Forex Analysis & Reviews: EUR/USD: USD drifts to lows of the year, whereas EUR gains momentum

The greenback has reached its lowest level in more than two years. It is likely to suffer the biggest monthly decline since July.

The greenback has reached its lowest level in more than two years. It is likely to suffer the biggest monthly decline since July.

Demand for the US currency as a safe-haven asset is decreasing amid the news about successful trials of the coronavirus vaccine. Such news fuels expectations for a rapid economic recovery across the globe. For instance, many European countries are gradually easing quarantine restrictions.

Besides, optimism in the market was boosted by China's strong macroeconomic statistics. In November, China's manufacturing PMI jumped to 52.1 from 51.4 recorded in October.

Experts at MUFG note that the greenback has lost ground amid improving prospects of economic growth along with the Federal Reserve's commitment to maintaining low interest rates until the economy gets back on track.

Risk appetite is recovering on the back of the growth of the Chinese economy. It has experienced a strong rebound after the economic shock caused by the pandemic outbreak.

The greenback fell by about 2.5% in November. The US dollar index dropped by almost 11% below the March peak of 102.99.

ING strategists highlight that the US currency is drifting towards the lows of the year as investors are revising their portfolios in favor of risky assets amid hopes for economic recovery.

While additional quarantine restrictions may halt the rally of the US stock markets, the Fed's willingness to increase dollar liquidity is likely to push it down. Given that the US dollar has been dipping in December for seven of the past ten years, analysts expect a slight decline in the US currency before the end of the year.

According to ING's forecast, the US dollar will drop by 5-10% against most currencies in 2021.

Analysts at Goldman Sachs expect the US currency to tumble by 6% over the next 12 months.

Citigroup experts predict that the US dollar could fall by 20% next year if COVID-19 vaccines become widely available. This will help revive global trade and economic growth.

On Monday, the US dollar index decreased by 0.1% to 91.55, reaching its lowest level since April 2018.

This week, investors will focus their attention on Jerome Powell's testimony before Congress on Tuesday and Wednesday as well as data on the US labor market for November.

Traders are expecting to get some hints about the regulator's view on the recovery of the national economy.

This week's key US economic data includes the labor market report which is projected to show an improvement in the employment level which has been growing for the seventh consecutive month. Economists predict that only 500,000 jobs have been added. The unemployment rate is expected to fall from 6.9% to 6.8%, still well above the March level of 4.5%.

Thanks to optimism around the global economic recovery and risk appetite, the EUR/USD pair updated three-month highs, rising above 1.1990.

Commerzbank said that the pair managed to rise above the 78.6% Fibonacci correction level to 1.1926. It may well reach the September high near 1.2014. At the same time, in case of a decline, the pair may find strong support at 1.1800–1.1789 (the low registered on November 23 and the 55-day moving average.

Experts at Deutsche Bank believe that the EUR/USD pair is ready to break above 1.2000 and end the year by consolidating above this level.

In particular, they point out that, according to the CFTC, it is not risky to open long positions on the euro. In addition, the epidemiological situation in Europe seems to be reaching a peak, and then the epidemic curve will stop growing.

Deutsche Bank pinpoints that the EUR/USD pair is likely to move higher after breaking the 1.1900 level. However, now it is trying to approach the levels that may force the ECB to make a verbal intervention