Dollar continues to decline against the euro and the pound, mainly due to the negative news surrounding the United States. The price jump yesterday is a confirmation of this, as such indicates that investors are again uncertain on which asset they would place their trades into.
The current main problem is the suspension of assistance programs that were adopted and operated during the pandemic, and such could seriously slow the pace of economic recovery in the United States. The failure of the government and Congress to find a consensus in supporting the affected companies and unemployed will put even more pressure on the economy in winter, which could lead to a severe economic slowdown or to a slowdown in GDP recovery, thereby revising the forecasts for next year into worse figures.
In addition, the Federal Reserve System will publish the minutes of its latest meeting today, which will indicate their intention to preserve a soft monetary policy. Some economists believe that the suspension of the assistance programs will result in a decline in GDP by 0.4% and a decline in the dollar by 0.9% each month, but the European Union solved some of its problems this summer by laying a solid foundation for economic growth in the second half of the year through a recovery fund for the EU economy, which the US could adopt as well.
The recent economic slowdown this July is also one of the evidence of the problems, but credit must be given to the fact that many businesses in the US have shown surprising resilience to the pandemic. In April this year, about a quarter of small businesses ceased operations, and by July this year, only 6% of them remained closed. In large enterprises, only those who went bankrupt before the pandemic went bankrupt.
As for Treasury bond yields, its recent rise will most likely support the US dollar in fall, as many investors will begin to return to safe assets that period because it would bring, albeit minimal, profit. However, the main support of the dollar will be the economic growth in the 4th quarter, but given the tensions between the United States, China, the EU and a number of other countries, the US dollar could weaken, and gold quotes may confidently consolidate above a price level of $ 2000.
With regards to macroeconomic statistics, the reports released yesterday included data on manufacturing activity in the New York Fed, which indicated a slowdown in August compared to July. The indicator came out 3.7 points against 17.2 points in July, while economists had expected the index to rise to 19.0 points.
Homebuilder sentiment also jumped to record high this August, which indicates a continued recovery. The report of the National Association of Home Builders revealed that the housing market index rose from 72 points in July to 78 points in August, and readings above 50 indicate that more builders are assessing conditions as positive. Economists forecasted the index to be 72 points.
Thus, for the technical picture of the EUR/USD pair, the quote is close to reaching the 19th figure, on the breakdown of which quite a lot depends. The breakout from the resistance level of 1.1915 will push the quote towards the high of 1.1970, and then will lead to a test of the psychological level of 1.2020. But if demand on risk assets decline today, the quote may update the low of 1.1830 is updated, which will be a good entry level for major players. A more serious area of support lies in the level of 1.1785, with which it is possible that the bulls will not bring the pair to such a precarious position and will begin to actively act after the update of the support level of 1.1865.
AUD/USD
The latest minutes published by the RBA once again made it clear that the central bank does not intend to change its monetary policy, but declared that it is ready to show flexibility in the event that the situation in the Australian economy changes. However, as always, such is done in order to protect itself and hold investors on their side.
Nonetheless, the Australian dollar managed to slightly increase last week, and is currently targeting a rise above the resistance level of 0.7240. A breakout from this range will push the quote towards the highs of 0.7315 and 0.7350, but the further target of the bulls is the price level of 0.7400. However, if the situation turns towards the bears again, long positions may be opened under the condition of a downward correction in the level of 0.7130, or when the price reaches the level of 0.7070.