The greenback has risen in price by almost 1.2% over the past week. The strengthening of the US currency was primarily due to increased expectations that the Federal Reserve could take a long pause after three consecutive interest rate cuts.
The dollar bulls were also supported by a series of relatively good US statistical data, the Fed's confidence in the strength of the country's economy and the sale of US Treasury bonds on the market.
In November, the yield on 10-year Treasuries, approaching the 2% mark, increased by 25 basis points, which made it possible for the USD index to win back part of the losses after sagging in October.
"In this short week because of the holiday in the US - the treasury market was closed on Monday in connection with Veterans Day - a new round of dollar growth will depend on whether the yield on 10-year securities exceeds 2%," ING currency strategists said.
This level of profitability has not been observed since the beginning of August, the period before the escalation of the trade conflict between Washington and Beijing. Given that in other developed markets, rates are either much lower or completely negative, investing in treasuries now looks the most profitable.
"Breaking up the 2% mark is likely to mean a stronger dollar versus low-yielding currencies, especially against the yen, given that the correlation of the USD/JPY pair with US yields is very strong," ING representatives said.
However, they noted that the recent sale of eurozone bonds, which increased their yield, did not help the euro.
"The sell-off on the bond market also affected European markets, and a stronger yield curve provided some support for the besieged European banking sector. However, this did not transform in support of the euro, which can be planned out for a short-term drift below $1.10," the ING reported.
According to experts, the main thing that the single European currency will experience in the coming days is the speech of US President Donald Trump at the Economic Club in New York (Tuesday) and Fed Chairman Jerome Powell in Congress (Wednesday), as well as German data GDP for the third quarter (Thursday).
At the weekend, the head of the White House said that Washington and Beijing would have very good trade negotiations, but the United States would only enter into a deal with China if it would be beneficial for the US side.
Now investors are waiting for D. Trump first of all explanations about the rollback of US tariffs on Chinese imports. However, he can report another important piece of news. In May, Washington took time to reflect until mid-November on the issue of increasing duties on deliveries of cars from the European Union to the US market. European officials believe that these duties will not be introduced, however, when dealing with an eccentric person like D. Trump, you can't be sure of anything.
Another important event of this week will be a speech by the head of the Fed to the Congress Joint Economic Committee, in the framework of which J. Powell will shed light on the further policy of the regulator. Last month, he made it clear that the last round of monetary easing was more likely a "reinsurance", and the market is waiting for the Fed chairman to confirm these words.
Meanwhile, expectations for German GDP data release are putting pressure on the euro. More than half of the 39 experts recently surveyed by Bloomberg predict a 0.1% decline in the third quarter. This will be evidence of a technical recession. Only three respondents expect to see the indicator grow by 0.1%, while the rest expect zero dynamics.
If Germany still manages to avoid a recession, then this will be good news for the bulls on the euro and allow them to go on the counterattack.
It is assumed that the speeches of D. Trump, J. Powell, as well as reports on German GDP and US retail sales will help answer the question of whether EUR/USD will be able to find the low near the bottom of the 10th figure. Falling quotes below November lows will open the way to 1.0965. A breakout of resistance at 1.1040–1.1045, on the contrary, will increase the chances of growth to 1.1075 and 1.1110.
The material has been provided by InstaForex Company - www.instaforex.com