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EUR / USD struggles to stay afloat

EUR / USD struggles to stay afloat

The greenback depreciates correctively on Tuesday in relation to its main competitors after rising by 0.3% the day before.

The USD index sank to 92.85 points, losing its recent gains. At the same time, the main currency pair remains at the range of 1.1800-1.1860.

The absence of significant growth in EUR / USD is explained by the same reasons that pushed the pair down earlier.

Hopes for an early compromise in negotiations between US Treasury Secretary Steven Mnuchin and House of Representatives Speaker Nancy Pelosi on the next package of aid to the American economy are gradually weakening.

Time passes, and Donald Trump, according to polls, lags behind Joe Biden in the election race. In this situation, Pelosi seems to have no particular reason to rush into the deal.

Although Biden stressed that if he wins, he will propose to Congress to increase the stimulus package to $2 trillion, judging by the dynamics of the US stock market, investors are inclined to regard this promise as nothing more than election populism.

Meanwhile, the new wave of COVID-19 has caught European countries by surprise, and many national governments have been forced to tighten social distancing measures. If local restrictions do not work, the authorities of some countries will be forced to introduce a nationwide quarantine. If the government of a large country takes such a step, the rest of the region may follow its example.

The euro refuses to fall so far, but the introduction of strict quarantines in the largest eurozone countries could be a turning point for the single currency.

The declining demand for USD is the only reason the underlying currency pair is trading above 1.1800. However, even this driver is unlikely to be able to support the euro for a long time.

There are a number of factors that will set the tone for trading on the US stock market in the coming days and will affect the dynamics of the dollar.

We are waiting for the publication of data on the US GDP for the third quarter. In addition, the current week is full of quarterly reports of American corporations.

Analysts believe US GDP growth has rebounded sharply in the third quarter. In this case, Trump will probably try to refer to this improvement as a reason not to introduce new restrictions, despite the record increase in the number of COVID-19 cases in the country.

Biden intends to act tougher in this regard. So if he wins, one can expect the introduction of severe restrictions, which will put pressure on the financial markets. True, one must understand that even if Biden wins, he will only become president on January 20, 2021. Although the markets may start to play it back in advance.

Weak quarterly reports of US corporations could also accelerate the sell-off in the local stock market, which will support the greenback.

In addition, one of the important risk events this week is the ECB meeting.

"The shadow of the COVID-19 pandemic continues to hang over the European economy, which should ultimately force the region's authorities to introduce more generous fiscal measures. It may even be beneficial for the euro if the bond issue is increased, "said strategists at SaxoBank.

Although experts do not expect the European Central Bank to announce any major steps following the next meeting on Thursday, they expect to hear from its head of the ECB Christine Lagarde that new incentives will be adopted by the end of this year.

"The market is likely to be disappointed if the ECB does not give a clear hint of the possibility of increased stimulus in December," said Gilles Mock, a specialist at AXA SA.

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