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FX.co ★ EUR / USD: Dollar snitches potential growth while euro faces downfall threat

EUR / USD: Dollar snitches potential growth while euro faces downfall threat

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Buyers took interest in the greenback after falling significantly from March to September of the current year making growth prospects still viable. In addition, according to experts, the US authorities need to establish faith in the USD in the markets in order to be able to continue selling government bonds worth trillions of dollars, so they may well support its growth with verbal interventions.

Meanwhile, the rally of the euro did not go unnoticed by the ECB. If earlier the head of the regulator, Christine Lagarde, urged investors not to react too sharply to the growth of the euro, on Monday Lagarde stressed that the ECB is closely following the strengthening of the euro.

"The strengthening of the Euro plays a significant role in various areas, and as for monetary policy, it puts downward pressure on the price level. We are very attentive to the appreciation of the euro and take it into account when determining our monetary policy," said Lagarde.

Fabio Panetta, a member of the ECB Executive Board said in turn, "The steady growth of the euro has led to an undesirable tightening of conditions in the financial sector and partly neutralized the ECB's accommodative policy."

These comments were a serious reason for the decline of the euro. And the increase in the number of COVID-19 cases in the Eurozone has added fuel to the fire, which gives good reason to worry about the fate of Europe itself.

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The rise of the cases in the EU has had a negative impact on the region's business performance. The service sector returned to contraction. At the same time, the composite PMI index approached the danger line separating decline from growth, which was another reminder of how fragile the recovery in the Eurozone is.

The US PMIs, on the other hand, exceeded expectations, remaining in growth territory. This strengthened the momentum of the euro's decline against the US dollar.

The greenback is growing at the fastest pace for the current week since March, amid concerns about the second wave of COVID-19 and the flight of investors from risk.

"Risky assets are being sold off everywhere. At the same time, there is a broad liquidation of short positions in USD," said currency strategists at Daiwa Securities.

"Issues related to the coronavirus pandemic and the need to further stimulate the US economy are returning investors' interest in the dollar," they added.

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During his speech on Wednesday, US Federal Reserve Chair, Jerome Powell, once again noted that new fiscal incentives are vital for the national economy and will allow the Central Bank to quickly achieve its goals in terms of employment and stable inflation.

Vice-Chair Richard Clarida, however, believes that the regulator will keep interest rates low until inflation reaches the 2% target.

Cleveland Fed President Loretta Mester noted that the benchmark is 2.5% inflation, which means that the Central Bank can keep rates at the current level until prices become much higher.

According to the head of the Federal Reserve of Boston, Eric Rosengren, the United States will be lucky if in the next three years inflation in the country reaches the level of 2%.

The "dovish" comments of the Fed representatives did not confuse the greenback, which remains attractive to investors amid the ongoing COVID-19 pandemic and is trading near nine-week highs.

Meanwhile, the EUR/USD pair remains in the red zone. On Thursday, it tested the 1.1640–1.1650 area, which it hasn't visited since late July. The breakdown of the important support at 1.1700 was a bearish signal for the pair, clearing the way for a deeper correction, at least in the short term. The next support is at 1.1630 and 1.1600, while strong resistance is located at 1.1855.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade
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