19.02.202009:00 Forex Analysis & Reviews: EUR/USD: Undervalued euro? Or an overvalued dollar? Either way, traders prefer safe-haven assets

There is a lot of talk on the market about what caused such a large increase in the US dollar, observed since the beginning of January this year. Some attribute it to the outbreak of the coronavirus that continues to spread around the world, others point it to the weakness and decline of the global economic growth, while others are confident that it is caused by the risks that the US presidential election may carry this year. Aside from that, we should not forget the troubled European economy, which will likely continue to stagnate this year, due to low inflation and zero interest rates. Most likely, both are right, since all this is interconnected, because in such situations, investors prefer safe-haven assets, which is evident not only in the growth of the US dollar, but also in the strengthening of gold.

Yesterday, the Bank of America published another survey that showed how investors react to the events mentioned above. 26% of respondents answered the higher risk associated with the election, while more than 21% gave priority to the coronavirus. Regardless, the Bank is confident that the dollar is currently overvalued. Yesterday, I cited a similar study in which more than 33% of stock managers said that the euro is undervalued. However, according to a new survey, more than 54% of respondents believe that the US dollar is overvalued, as it continues to update annual lows, gradually moving to 1.0500.

The dollar was supported by yesterday's report indicating a sharp increase in business activity in the area of responsibility of the Federal Reserve Bank of New York. According to the data, the production index in February 2020 rose to 12.9 points against the January figure of 8.1 points. Economists had expected the manufacturing index to be 4.5 points. Meanwhile, the business expectations indicator fell slightly to 22.9 points, while only the inventory indicator was in negative territory.

More detailed reports on the housing sector will be published today. In February 2020, according to the National Association of Home Builders, the housing market index dropped to 74 points from its 75 points in January. Meanwhile, in December, the index was 76 points. Note that a value above 50 indicates a positive attitude to the market. Economists had expected the index to be 75 points.

There are no hints of reversal in the EUR / USD market. The attempts of buyers of risky assets to bounce back from another annual low yesterday resulted in a sell-off. All that can be expected from the pair is a return to the resistance area of 1.0830, since it is only above this range can a larger growth happen in the area of the highs at 1.0860 and 1.0890. If the pressure on the pair continues, the lows of 1.0740 and 1.0680 can be updated.

Meanwhile, the loonie declined against the US dollar, after a report was released indicating that sales in the Canadian manufacturing sector fell in December. According to the report, deliveries in the manufacturing sector decreased in December 2019 by 0.7% and amounted to 56.41 billion Canadian dollars. Regardless, by the end of yesterday, the loonie returned a number of positions, winning back the resistance level of 1.3260. Below this is where trades are currently being conducted. This keeps the possibility that USD/CAD will fall to the lows of 1.3220.