FX.co ★ EUR/USD: US dollar's downward trend acts as euro's jump-off point

It's been very tough for the US currency in the last few months and it is struggling to recover from a series of shocks caused by a number of factors. Experts expect the indicated currency to slowly recover, however, they are worried that this process may be delayed.

The dynamics of the US dollar is negatively influenced by factors such as COVID-19 together with its economic consequences, US presidential elections, as well as Fed's current monetary policy, aimed at actively printing money.

Investors' increased risk appetite, which was the strongest in the last two years, is another factor that caused the US dollar to decline. Currency strategists at Barclays Bank say that this currency will continue to be under pressure in the short term due to investor risk appetite amid hopes for effective vaccines. Nevertheless, they also stated that it is possible that the USD will strengthen and reach new levels in the medium term.

In turn, euro's growth provokes the situation in the EUR/USD pair. Last Friday, the single currency began to strengthen its positions, which continues to this day. Commerzbank analysts are sure that the euro will rise to the level of 1.2400 next month and further to 1.2500 in 2021. Currently, the indicated currency is moving towards its target, not paying attention to temporary failures. Today, the EUR/USD pair was trading near the range of 1.1969-1.1970, heading towards the intermediate level of 1.2000. Experts believe that breaking through this level will lead to new peaks.

On another note, Commerzbank's currency strategists believe that ECB's monetary policy, particularly the possibility of reducing the interest rate next year, may limit euro's growth. Its further dynamics will be negatively affected by the withdrawal of dollar liquidity from the financial system.

However, investors and traders are hopeful that the ECB will not make sudden movements and drastically change its current policy before this year ends. Markets expect the regulator to expand the concessional lending program for banks (TLTRO), but this will not be definite for the euro. Analysts say that the euro usually reacts to such serious incentives as a change in the deposit rate or an asset purchase program, so now there is a slight change in its dynamics. The market is relying on the continuation of the upward trend of the EUR/USD pair this week and these expectations will most likely be reached.

Experts believe that the Eurocurrency in the EUR/USD pair is trying to take the lead, whose efforts pay off often. However, the US currency is not satisfied with being a jump-off point in the classic pair, so it tries to recover its position. And although its growth attempts sometimes don't end up successfully, it is actively gaining momentum. Therefore, many analysts are positive that the USD will reach what it wants in the incoming year.