The dollar made another downward spurt despite being oversold. The dollar index dropped below 94 points on Monday. EUR/USD rallied above 1.1700. Thus, the expectations that the rate of the main pair will go into correction after reaching the 1.1500 mark did not come true.
Market players, apparently, are inclined towards the fact that the authorities will reduce the degree of social discontent with generous interventions and distribution of money to the population before the presidential elections. This factor speaks in favor of a weakening dollar. The greenback is also under pressure from heightened tensions between the US and China. If earlier the greenback could benefit from the confrontation between the two giants, now everything is different. As a safe haven, traders are now buying the yen and the Swiss franc.
The Japanese currency strengthened against the dollar to a 4-month high, located around the 105.17 level. Meanwhile, the franc reached a 5-year high of 0.9167 against the dollar.
This week, traders are focusing on the Federal Reserve meeting, which starts on Tuesday. No major announcements are expected, but financial officials may start laying the groundwork for further action in September or later this year. The rhetoric of Fed Chairman Jerome Powell can send the dollar in one direction or another. The most likely is a downward movement. The Fed Chairman previously expressed hope that the economy can recover in the second half of the year, but the current epidemiological situation has confused all the cards and, it seems, will force Powell to radically change his views. Any mention of negative rates will hit the already weak dollar, which is expected to decline both before the Fed meeting and after.
USDX
The data on economic growth in the US, which will be published on Thursday, may also affect the dollar. Despite signs of slowing down, COVID-19 is still spreading at a high rate in the United States. Market players have doubts about the rapid economic recovery. Traders are preparing for the fact that in the second quarter, GDP fell by 34% on an annualized basis, in the first quarter it fell by 5%.
Considering a whole train of negative factors for the dollar, large American investment banks are unanimously lowering their forecasts for the national currency. The pessimism towards the dollar is really hard to dispute when it comes to the long term. In the medium term, things may be a little different. The dollar exchange rate has now fallen catastrophically and needs to be corrected.
It is expected that the correction will start at 1.1700 when paired with the euro. A technical pullback to the 1.1600 area is possible, after which the transition to the 1.1370 area will be justified. Lower is unlikely. Here, most likely, we will see long-term bearish positions being formed on the greenback. Thus, July may be the worst month for the dollar in the last ten years.
EUR/USD
So, the rates for further depreciation of the US currency are likely to grow. The main reasons: the aggravation of the conflict between Beijing and Washington, the alarming epidemiological situation in the United States, the growing expectations of the FRS rate cut. Do not forget about the November presidential elections in the country, which carry many uncertainties.
The material has been provided by InstaForex Company - www.instaforex.com