The dollar index still could not hold its ground at the end of Monday, and it began to gradually decline during the Asian session on Tuesday: if yesterday this indicator almost did not leave the 103rd figure, it is currently at the bottom of the 102nd level. And although any index value above a hundred points indicates the "good health" of the US currency, the trend itself suggests that the dollar's moment of glory has passed – at least, for a second rally, the greenback needs a powerful informational push.
The euro-dollar pair follows the general trend – after some hesitation, buyers were still able to seize the initiative, and now they are once again testing the eighth figure. However, it is worth recognizing that the EUR/USD bulls of the eight price level do not lend themselves in the same way as the bears to the sixth figure.. Therefore, it is too early to talk about a turning point in the situation, at least until traders get a foothold above the lower boundary of the Kumo cloud on D1, which corresponds to the 1.0940 mark.
There are certain prerequisites for the implementation of this scenario, since the dollar is declining for several reasons at once, and not only of a technical nature. First of all, the greenback was under pressure after the US Senate today repeatedly failed to vote for the program of financial support for the US economy. Only 49 congressmen voted for the relevant document, while it was necessary to have 60. It would seem that against the background of the rapidly deteriorating epidemiological situation, senators should not be up to political discord, but despite everything, this bill has become another "bone of contention" between Democrats and Republicans. It is worth remembering that the US will hold presidential elections in just eight months, so Donald Trump's opponents are not in a hurry to "wave" the necessary laws, seeing this as an element of the election campaign.
In particular, representatives of the Democratic party said that the package of proposed measures provides too much assistance to large businesses. At the same time, Democrats insist that the primary focus should be on payments and guarantees to individuals. According to a number of political analysts, the discussion of this bill may be delayed – it will be difficult for Trump's party members to find a compromise with the Democrats, while they need their votes: five Republicans are in quarantine after the discovery of a coronavirus in Congress, and therefore can not take part in meetings. Moreover, when the bill was re-examined, the Democrats cast fewer votes than in the original one.
Meanwhile, the situation with Covid-19 in the US continues to deteriorate. The number of confirmed cases of coronavirus infection there exceeded 40,000, and it doubled over the past two days, and has increased by almost 9,000 people during the day. The virus claimed the lives of more than 500 patients, while the number of people recovered amounted to only 187 people. By the number of cases, the United States is still in third place in the world. And judging by the comments of experts, the United States can lead this sad rating - according to a senior official of the Department of Health - Dr. Jerome Adams - a sharp increase in the incidence rate is expected in the coming days in America, as many residents of the country (especially young people) do not take the threat seriously, do not follow quarantine regulations and do not practice social distance. In confirmation of these words, it is worth noting that in two states (Maryland and Virginia), the daily increase in the number of infected was almost 50%. These rates of spread of Covid-19 exert indirect pressure on the US currency.
But the European currency received unexpected support from Brussels yesterday - the European Union for the first time approved the suspension of the budget rules. The EU Economic and Financial Affairs Council has approved the proposal of the European Commission for the first time in history to suspend the operation of the eurozone's core document - the Stability and Growth Pact. Let me remind you that this Pact limits the state budget deficit of the eurozone countries to three percent of GDP, and the public debt limit is 60% of GDP. Italy struggled for a long time to exceed this ceiling the year before last, even under the threat of fines. Now the action of this document has been suspended, which will allow the governments of the EU countries to get loans without restrictions, increasing the budget deficit and to provide assistance to business. Earlier, the head of the European Commission, Ursula von der Layen, announced this step - according to her, the budget of the European Union will take on part of the burden of saving the economies of the bloc.
The actions of Brussels could not turn the tide on the EUR/USD pair, but the pressure on the euro decreased (for example, the single currency showed character in the EUR/GBP and EUR/CHF cross pairs). At the same time, the dollar is still the main catalyst for the movement of the EUR/USD pair, or rather, the ratio of traders to this currency. The greenback is still the most attractive defensive asset, but the hype around it has sharply fallen. Such a contradictory background does not allow bulls to escape beyond the seventh figure, and bears - finally gain a foothold in the sixth.
In addition, in recent days, rumors have spread around the market that the Federal Reserve and the US Treasury may use traditional currency intervention to stabilize the dollar. In particular, according to currency strategists at Goldman Sachs, such a scenario is quite likely - especially if the US currency will continue to grow, despite the Fed's dollar swap lines and quantitative easing programs. Similar rumors also exert indirect pressure on the greenback, complicating the task of the EUR/USD bears. That is why it is better for the pair to take a wait-and-see position in view of the ambiguous fundamental background. The support level is still at 1.0650 (the lower line of the Bollinger Bands on the daily chart), and the resistance level is 1.0940 (the lower boundary of the Kumo cloud on the same timeframe).
The material has been provided by InstaForex Company - www.instaforex.com