EUR/USD at the crossroads

Author: CMS Prime | Category: Education

A look at EUR/USD and what comes next

CMS
With much of Europe and the United States reeling from Covid-19, one beneficiary has been the euro, having risen to yearly highs vs the dollar this month.

After bottoming out in mid-March, the currency pair has seen its fortunes reverse, striking fresh yearly highs as investors flock behind the euro.

There are a few different factors in play however, all resulting in a net positive for the EUR/USD looking ahead.

Key points to watch

The recent gridlock in the United States' Congress has eroded confidence in the US dollar. This has led to an all-out siege against the greenback, with the euro and gold scoring advances.

Partisan bickering between Republicans and Democrats shows no sign of abating anytime soon, with a fresh stimulus bill as elusive as ever. With key economic safety nets in danger of lapsing, the US economy is appearing more fragile than ever, which bodes poorly for the US dollar in H2 2020.

Conversely, Europe's recent stimulus package has proved to be a dose of stability investors were looking for. Consequently, the EUR/USD has touched fresh highs and remains bullish.

Covid-19 continues to play a role in both Europe and the US, though the scale of the pandemic could not be more different between the two continents. Whereas the US has seen the death toll soar past 160k with upwards of 60k new cases per day, Europe has seen witnessed a fraction of this.

Internal strife and doubts over Donald Trump's handling of the pandemic will continue to hamper any US dollar rally in the near-term. With an election scheduled in under 3 months, there is the potential for a wide range of factors, so this is one area to watch.

Finally, any dollar bulls will need to dial back expectations in H2 2020 after a recent tranche of economic data. The latest US unemployment data is further casting doubt on a V-shaped recovery, once touted by White House administration officials.

Few, if any experts now full expect a quick rebound in the US economy as Covid-19 continues to linger. A looming battle this fall surrounding school openings could also serve as an additional harbinger, with shuttered institutions doing little to promote economic growth.

EUR/USD outlook

Most trends are signaling a rise in the EUR/USD, with the pair having since regained the 1.19 handle after a slight correction.

Looking ahead, most experts are seeing grounds for a stronger EUR/USD as the dollar continues to weaken.

Near-term resistance for the EUR/USD lies at 1.1930, 1.1965 (two-year high from earlier this month), as well as the psychological level of 1.2000.

This article was submitted by CMS Prime.
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