FX.co ★ EUR / USD: Second wave of COVID-19 threatens euro but strengthens dollar

The greenback rose sharply on Monday against the backdrop of falling stock markets. The USD index reached its highest values since August 12.

""There was a flight to safety into the greenback and bonds from the sell off in equities," said strategists at DBS Bank.

Investors fear that an increase in the number of coronavirus cases in Europe and a decline in enthusiasm for new stimulus in the US could impede the global recovery from the pandemic.

On Tuesday, the US dollar strived to maintain the positions it won the day before, trading near 93.6 points.

For this week, traders are looking forward for the speech to be given by the Chair of the US Federal Reserve, Jerome Powell and the US Treasury Secretary, Steven Mnuchin to address the Congress.

According to DBS bank, "Market sentiment will remain subdued if Powell and Mnuchin fail to break the deadlock in congressional approval of the next round of fiscal stimulus."

Against the background of increased risk flight, the EUR/USD pair sank to multi-week lows around 1.1730.

"The rapid strengthening of the bearish momentum promises the euro further weakening towards the important support of $1.1695. Its clean break would signal that the September high near $1.2011 could hold for a longer time. In general, EUR / USD will remain under pressure until it manages to break through the strong resistance at 1.1855, " UOB experts believe.

Meanwhile, analysts at Bank of America believes that, "In recent weeks, the main currency pair has attracted buyers on declines to 1.17, but all attempts by the bulls to take advantage of stabilization to resume the offensive have ended in failure and are becoming more sluggish. The dynamics of EUR / USD hints that the potential for a decline is growing. Therefore, the pair can be expected to form at least a local top."

They predict that the EUR / USD pair will return to levels around 1.15 in the coming weeks.

"The volume of net longs for the euro began to decline, the US presidential election is just over a month away, and investors are concerned that soft and local measures to contain the spread of COVID-19 were not enough and in a number of countries the second wave of the disease is gaining strength," BofA reported.

Experts at ING doubt that the greenback will grow in the long term saying, "Dollar liquidity is not a problem now, as it was in March. In addition, the Fed may intervene if risk sentiment worsens further. We expect that this week the level of 94.00 will be a strong resistance for the USD index."