FX.co ★ Dollar's fundamental weakness causes it to decline (EUR/USD and AUD/USD may correct before the dollar continues its weakening)

The dollar has ended with a decline against a basket of major currencies for the fifth week in a row, which fully confirms the rhetoric we outlined earlier that it entered a period of global decline on the wave of switching the attention of market players from the topic of the negative impact of the consequences of coronavirus infection, in which the US currency was in demand as a safe haven asset in the post-coronavirus realities, where large-scale stimulus measures from the US Treasury and the Federal Reserve will play a significant role. In addition to the existing ones, S. Mnuchin, the US Treasury Secretary, announced over the weekend that a new aid package of almost $ 1 trillion was ready.

In addition, it should be noted that the drop in the ICE dollar index strengthened last week, when seemingly weak data on the number of unemployment claims in the United States, paired with growing tensions between Washington and Beijing, caused a wave of local sell-offs in global stock markets. Earlier, in such a situation, the dollar, along with gold quotes and safe-haven currencies - the Swiss franc and the Japanese yen should have received support. However, this did not happen precisely because of the virtual balance of negative for its course, rather than positive reasons.

Given the stabilization of the situation in Europe, primarily due to the decision to create the EU Recovery Fund, the euro exerts the most noticeable pressure on the dollar index. Raw materials and commodity currencies and even sterling are strengthening against the US dollar. Such dynamics is justified for the British currency rate by the latest strong economic statistics, which are the values of retail sales and their volumes.

It was expected that after strong growth in May in June, they would decline, but the opposite happened. Underlying retail sales both in annual and monthly terms increased markedly, as did their volumes.

As for the reasons for the growth of rates of commodity and raw currencies, here, the main role is played not only by the fact of the recovery of the Chinese economy, but by its growth, which is not observed either in Europe or in America. For the same reason, the value of commodity assets and crude oil prices are rising. These positive trends are reinforced by the expectation of the early introduction of the developed vaccines against the COVID-19.

On the other hand, a two-day Fed meeting on monetary policy will take place next week. It is expected that all of its parameters will be preserved, which means that the market will simply be interested in the American regulator's view of the state of the country's economy, as well as its prospects in the light of the latest economic statistics.

In general, we continue to expect a weakening of the dollar, which will only intensify as the "X" hour approaches, when vaccine production is launched.

Forecast of the day:

The EUR/USD pair has tested a new local high of 1.1725, continuing to rally again amid the general weakness of the dollar and the decision of the EU to launch the Recovery Fund. From a technical point of view, it is overbought, therefore, it can correct to 1.1625, if it does not overcome the local maximum. We consider it possible to buy the pair either on its pullback from 1.1625 or on the breakdown of the level of 1.1725 with a likely rise to 1.1760.

The AUD/USD pair is gaining support in the wake of positive Chinese economic data released today. If it holds above the level of 0.7125, we should expect further growth to 0.7200.