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The US currency, despite serious price decline in recent months, is trying to take revenge. Its efforts are successful from time to time, but most often, the rise is recorded against the background of a slight weakening of the euro.
Last week, the dollar significantly increased in relation to the "European" currency, after strengthening for the first time after an eight-week decline. Thanks to this, the US currency managed to avoid the longest bearish trend in the last 10 years. Experts believe that one of the drivers of the dollar's recovery is not too positive statistics on business activity indexes in Europe (PMI).
According to current reports, the August PMI figures for manufacturing and services in the euro area showed a noticeable decline. The service sector, where economic activity is extremely low, remains a "black hole" in this regard. This month, the PMI of the services sector in the euro area declined to 50.1 points, compared with 54.5 points recorded in July. According to experts, this indicates a stagnation in business activity and a prolonged recovery of the European economy.
A bright spot on this background was the American statistics. The positive data provided strong support for the dollar, which helped it gain confidence. According to calculations by Markit, in August, the preliminary purchasing managers index (PMI) for the US manufacturing sector increased to 53.6 points from 50.9 points recorded in July. Another economic indicator, the service sector PMI in the United States, also saw a rise. It rose to 54.8 points this month from the previous 50.0 points. The current situation turned out to be very favorable for the dollar, who seized the chance and overtook its opponent in the EUR/USD pair.
Last week, the EUR/USD pair managed to climb to a spiraling height, breaking the level of 1.1900. However, the bulls' joy from the breakout of this level was temporary: the meeting of the Open Market Committee (FOMC) became an icy shower for them. Let us remind you that the last meeting did not bring optimism to the current economic situation. According to the FOMC representatives, the current crisis caused by COVID-19 pandemic will continue to negatively affect economic activity, unemployment and inflation. In the medium-term, this creates significant risks for the global economy, reducing the chances of its recovery.
According to analysts at Danske Bank, in the current situation, amid large volume of long positions in the EUR/USD pair, bears will storm the support level of 1.1700 again. The bank considers the breakthrough of this barrier to be the most likely scenario for the pair. At the beginning of this week, the EUR/USD pair is behaving quite calmly, without sharp ups and downs. On Monday morning, August 24, the pair started with a low range of 1.1794-1.1795, but later gained impulse. After that, the EUR/USD pair traded near the range of 1.1802-1.1803, but failed to leave these limits.
According to currency strategists at Danske Bank, there are no new drivers at the moment which are capable of giving impulse to the EUR/USD rally. At the same time, players prefer to take profits on long positions. Analysts are recording a decline in investor interest in emerging market assets, which is a bearish signal for the classic pair.
According to the bank's forecast for the EUR/USD pair for the next three months, the pair will run within 1.1600. According to Danske Bank experts, the fair exchange rate for the EUR/USD pair, taking into account the value of assets, is 1.0700, and considering the productivity and trading indicators, no more than 1.0500. At the same time, the Agency's forecasts for the indicated pair for six months and the current year remain at the level of 1.1200.
In the short term, the situation in the EUR/USD pair may benefit the dollar. However, it will have to give up the Euro in the medium and long term. According to analysts, the US currency will not completely lose its dominant role, but will only give up part of the leadership "pie" to the European one. Experts sum up that this will help to maintain the balance in the EUR/USD pair.
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