New lockdowns in Europe and the uncertainty surrounding the US elections are forcing investors to give up buying risk. The dollar index rose on these factors and seems to be firmly entrenched above 94 points. However, on Monday it lost a little enthusiasm and lost his morning gains. The demand for defensive assets has weakened somewhat, but it is too early to speak of a full-fledged increase in risk appetite.
The mark of 94.6 points acts as resistance to the further rebound of the dollar index, while the long-term target remains near 90 points.
Market players cite the recovery of the USD index as one of the reasons for the decline in the euro. Currently, the focus is on the US elections. And while traders are assessing the results of the elections, the dollar is provided additional support by the growing incidence of coronavirus in the world.
Democratic representative Joe Biden leads in all polls, but the intrigue persists. At the last rally, the current US President Donald Trump made it clear that he would not give up just like that. If necessary, he intends to defend his victory in the Supreme Court. And if the court is controlled by Republicans, this may work in favor of Trump.
EUR / USD has lost momentum for growth, which appeared in hopes related to the adoption of the package of measures before the elections. Despite the fact that the final PMI data in the manufacturing sector in Germany and France beat economists' forecasts, the euro is still aimed at testing September lows in the 1.16 region. If this mark is still broken downward, a deeper decline will follow. However, this is unlikely to happen before the elections. What happens next will largely depend on the election results. There are also rumors in the markets that Joe Biden's victory may negatively affect the dynamics of the dollar which, at the moment, risks losing about 1-2% against the euro.
When a disputable situation arises, that is, if the losing side does not admit defeat, instead of a drop in risk appetite, we will witness panic sales.
If you look at the situation more broadly and do not get hung up on the US presidential elections, then the euro against the background of more confident economic recovery rates may be more interesting to investors than the US dollar.
Greenback risks widening devaluation. A massive monetary and fiscal stimulus program and the US government's eagerness to reduce the trade deficit make the dollar less attractive as a capital preservation tool.
The outlook for the euro looks the most robust. Looking back a little, you can see that the pace of economic recovery in the eurozone after the first wave of the pandemic is higher than in the US. Thus, in the foreseeable future, in the absence of additional shocks, the EUR / USD pair will again aim for the 1.20 mark.