FX.co ★ EUR/USD. Depressed dollar and promising euro: 18th figure appears on the horizon

The US currency continues to fall across the entire market, while the euro-dollar pair continues to renew its multi-month highs. The fundamental background is clearly against the greenback, but the single currency is supported by many factors. Taking into account the latest trends, the market started talking about the return of the EUR/USD price to the area of 20 figures, although today it is too early to talk about it.

What happened?

It should be emphasized right away that the growth of the EUR/USD pair is primarily due to the weakness of the US currency. The rapid spread of the coronavirus in the United States amid massive protests in many American cities is putting tremendous pressure on the greenback. In addition, relations between Washington and Beijing have deteriorated recently. All these fundamental factors reduce the attractiveness of the US currency, while the euro looks pretty good, especially against the background of today's macroeconomic releases. And rumors around Brexit have increased interest in risky assets, which can include the euro.

However, about everything in order. The coronavirus theme is the "# 1 theme" for EUR/USD traders. By and large, market participants are interested not so much in the fact of the spread of the epidemic in the United States, but in the reaction of the state authorities to existing trends. But since these factors are interrelated, traders react very painfully to the increase in the number of infected people in the country. The daily increase in COVID-19 patients is stable above the 60,000 mark. A slight decline was only recorded last Sunday: 45,000 new patients. However, this alarming indicator then went up again, showing negative trends. COVID-19 was found even in the US president's national security adviser, Robert O'brien.

All this has led to the fact that doctors and scientists have called on the US authorities to return the country to strict quarantine. The open appeal, which was supported by the country's chief epidemiologist, was signed by more than 150 specialists and doctors. Some state governors and mayors have already increased quarantine restrictions. The dollar reacts negatively to such news, as the return of lockdown (even on the scale of individual cities and states) may slow down the recovery process of the American economy.

The news from Capitol Hill did not help the dollar either. The fact is that today the US treasury secretary presented a bill on additional financial assistance to the country's economy in connection with the coronavirus. The volume of this bill is $1 trillion. The White House presented the bill just days before the expiration of federal unemployment benefits for millions of Americans (due to expire on Friday). However, this news provided rather weak and temporary support to the greenback. According to many experts, the proposed aid package will act as a patch, while the American economy needs more powerful infusions. For example, the Democrats have drafted their $3 trillion bill. They were able to receive him in the Lower House of Congress, but did not find support in the Upper House. Now the situation has acquired a mirror image. Republicans control the Senate, while Democrats have a majority in the House of Representatives. In turn, the adoption of the aid package from the White House is impossible without agreements between the leaders of the two chambers of Congress. Representatives of the Democratic Party have already criticized the initiative of their political opponents.

But not only internal political battles are weighing on the dollar, but also external ones. Political relations between the US and China continue to deteriorate. Here we need to recall the background of the issue: on July 21, Washington demanded that the Chinese diplomatic mission in Houston be closed within 72 hours. A little later, US Secretary of State Mike Pompeo explained the decision of the White house, accusing China of spying and stealing American intellectual property. The response measures from the PRC were announced yesterday: Beijing has demanded to close the US Embassy in the Chinese city of Chengdu. Relations between the superpowers cooled during the peak of the pandemic and are now continuing to deteriorate. All this suggests that representatives of Washington and Beijing will not sit down at the negotiating table for the second part of the trade deal in the foreseeable future.

Against the background of such pessimism, the European news looked quite optimistic. In particular, the German business environment indicator from the IFO (which is quite closely correlated with the dynamics of the German economy) today came out better than expected: instead of the expected July growth to 89 points, the indicator rose to 90.5 points. The indicator is growing for the third month consecutive month, reflecting the recovery of the German economy.

Rumors around Brexit also had a positive effect on the dynamics of the EUR/USD pair. According to Reuters, the EU's chief negotiator Michel Barnier is confident that a "balanced deal" is possible, albeit less ambitious than previously thought. Also, journalists learned that British Prime Minister Boris Johnson actually intends to conclude a trade agreement, despite the fact that he says he is ready for Brexit without a deal.

How do I trade?

The EUR/USD pair still retains the potential for further growth. Now the price is testing the resistance level of 1.1750 (lower border of the Kumo cloud on the monthly chart). This is an extremely important level, overcoming it will open the way for the bulls of the pair to the 18 price level, and to the 20 figure in the future. The current pause and a small price pullback are associated with the discussion of the Republican bill on providing the US economy with financial assistance. Therefore, you should not rush to open long positions now. But as soon as buyers consolidate above 1.1750, longs can be considered with the first target at 1.1800.