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28.07.202011:04 Forex Analysis & Reviews: EUR/USD: Risk assets continue to hit monthly highs amid pledges of COVID-19 vaccine. Fed begins its two-day monetary policy meeting today.

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The euro and the pound continue to hit monthly highs and even broke new major resistance levels amid US President Donald Trump's promise to deliver a coronavirus vaccine soon.

Exchange Rates 28.07.2020 analysis

Trump noted the progress of the vaccine at his speech yesterday, and promised that it would be ready by the end of the year, although he did not specify which one. There was also news yesterday about an alleged breakthrough in this direction by American scientists, but so far this has not gone beyond the stuffing in the media. Nevertheless, these were enough for the bulls to build up long positions in the forex market.

Meanwhile, Republicans submitted a proposal to reduce the unemployment allowances given by the Fed, which were part of support to the population in order to overcome the consequences of the coronavirus. The proposed plan provides for a threefold reduction, which means that the current payout of $ 600 per week could be reduced to $ 200. However, the Democrats did not agree with it as they have already stated that they are in favor of maintaining the current financial support.

But if the benefits remain at the current level, there is a high risk that workers will find difficulty in returning to their duties, since some of the current benefits are higher than their current salaries. If this happens, recovery of the labor market will be slower, which will seriously affect the pace of economic recovery after the pandemic, the end of which is too early to speak.

Today also starts the two-day meeting of the Federal Open Market Committee, whose decisions will affect the prospects for a sustainable economic recovery. These are the solutions that will be aimed at combating the coronavirus pandemic. While it is not expected that the Fed will announce additional stimulus measures during this meeting, new proposals on how to strengthen support for the economy should certainly be discussed, as the current measures may not be enough to create a V-shaped economic recovery. It is unlikely that changes will be made to the existing bond purchase programs. Most likely, the committee will take a wait-and-see attitude and will wait for the decisions of the US government on new programs to help the economy before taking any action.

As for macroeconomic news, the data on orders for durable goods in the United States, which was published yesterday, delighted traders and increased the demand for risk assets, since the recovery of the US economy will have a positive effect on the global economy as a whole. According to the report, new orders for durable goods rose 7.3% in June, up from economists' forecast of 5.4%. Orders for transportation equipment also jumped 20%.

Exchange Rates 28.07.2020 analysis

The improving manufacturing activity in Dallas was also good. A report from the Dallas Fed indicated that the manufacturing index has increased again from 13.6 points in June to 16.1 points in July, which means that the index has been recovering after its sharp collapse in the 2nd quarter.

Thus, for the technical picture of the EUR / USD pair, the upward trend in risk assets may change soon, since the bulls have already used everything to push the quotes to the 18th figure, where demand for the assets have slowed sharply. Most likely, there will be no significant changes in the market until the Fed's decision on monetary policy, which could form a small downward correction in the trading chart. If the bears manage to consolidate the quotes below the support level of 1.1725, it is likely that the pair will decline, perhaps to a larger low at the level of 1.1680. Nevertheless, a drop even to the level of 1.1640 will not hurt the bullish trend observed since the beginning of this month, from which a breakout from the 18th figure would easily push the quotes to the level of 1.1200.

Jakub Novak
Analytical expert of InstaForex
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