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25.09.202014:20 Analisis Forex & Kajian: EUR/USD: US dollar is not in a rush to dismiss doubts, leaving the euro under pressure

Long-term review

Exchange Rates 25.09.2020 analysis

The USD index is trading near a two-month peak today, which was reached yesterday in the area of 94.6 points. As we can see, the dollar is close to showing the best weekly performance in almost six months.

James Bullard, the head of the Federal Reserve Bank of St. Louis, said that the US economy may fully recover by the end of 2020. However, his forecast looks overly optimistic, since there are only few now who believe that the Democrats and Republicans will compromise on the agreement about a new economic stimulus package before the US presidential election.

According to State Street Bank experts, it is not yet clear whether another economic package will be adopted. At least no one expects the deal to be concluded before the elections, but the economy really needs some help by the end of the year, as recently announced by Feds' representatives.

Yesterday's released data showed that the number of Americans who filed new applications for unemployment benefits unexpectedly increased last week. This signals that the US economic recovery is getting worn out.

Moreover, Goldman Sachs experts revised their forecast for US GDP growth in the fourth quarter of 2020 — from 6% to 3%.

Exchange Rates 25.09.2020 analysis

This week, the USD index rose by 1.4%,but there are doubts whether US lawmakers will be able to overcome the differences to agree on another package of support for the national economy.

State Street Bank said that the dollar's rise and risk aversion may continue, since news in the United States is dominated by elections. At the same time, it is likely that political uncertainty will put pressure on the markets.

Nomura strategists also expect the dollar to strengthen in the short term and recommend selling the euro.

They said that there are several factors indicating that the dollar will continue to rise. The risk sentiment is deteriorating as the chances of US fiscal stimulus decline. In addition, it is not yet clear whether the market has fully considered the threat of the second wave of COVID-19.

So technically, breaking through below 1.1700 seems to signal the end of the upward trend of EUR/USD. Thus, they advise to sell the main currency pair with the target at 1.1400 and the stop at 1.1850.

In turn, analysts at JPMorgan note that while the EUR/USD pair remains below the level of 1.1700, the path of least resistance for it looks like a movement to new lows, and the nearest target is the level of 1.1500.

Meanwhile, Danske Bank expects that the pressure on the single European currency is unlikely to disappear until the end of this year.

"The euro is unable to receive support from the recent change in the Fed's approach to the inflation target. At the same time, a new wave of restrictions due to the increase in cases of coronavirus infection in the EU can undermine the economic growth of the region," Bank experts said.

So, they forecast that the EUR/USD pair will trade within the levels of 1.1500-1.1900 by the end of the year.

Viktor Isakov,
Analytical expert of InstaSpot
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