The US currency's position, which was shaken previously, is gaining strength again. The dollar is strengthening against the European currency, consequently regaining its leadership throne. Experts are confident that the dollar will strengthen in the near future.
On Wednesday, January 8, the attention of investors was focused on the US currency, which grew against the background of the growing conflict in the Middle East. Recall that at the end of last week, the US army launched airstrikes at the airport in Baghdad, killing Qasem Soleimani, the major general of Iran. This provoked a surge of tension not only in the region, but also in the financial markets. As a result, oil and gold rose sharply, while the dollar was in the role of a protective asset.
Together with the Japanese yen, the dollar showed its strength, reaching the level of 108.53 on Tuesday. According to Rabobank analysts, if the conflict in Middle East tightens, yen may rise, but at the moment, the dollar firmly holds the lead in the USD/JPY pair.
The European currency, which had previously sought to correct shaky positions due to the weakening of dollar, was also a loser. Yesterday, euro went down by 0.4%, and fell to 1.1143. Just a day earlier though, on Monday, the European currency went up against the background of strong economic statistics. It was helped by the growth of the Eurozone's purchasing managers' index (PMI) for December 2019, which revised upward. Moreso, the final PMI, which records activity in the service sector and in the manufacturing sector, changed upward as well. Its value increased from the previous 50.6 to 50.9. Recall that an indicator above 50 emphasizes the growth of activity in the sector, while below 50 indicates a decline.
After the publication of the Eurozone PMI indices, the EUR/USD pair began to conquer the price peaks. Its active growth, however, slowed down yesterday. At the beginning of the European session, experts recorded a drop in the tandem, which reached the level of 1.1170 at the end of last week.
On Wednesday morning, the EUR/USD pair started with attempts of rising from the low level of 1.1146. The tandem's efforts were successful, and it began to gradually move up.
Thereafter, traders who were following the dynamics of the EUR/USD pair were disappointed. The tandem collapsed to the critical level of 1.1137, on the verge of reaching the bottom. According to experts, its further growth is hindered by weak inflationary pressure in the Eurozone, as the target inflation rate is below 2%.
Recall that at the end of December 2019, the EUR/USD pair overcame the most important resistance level of 1.1158, and soared to the level of 1.1240. However, at the very beginning of the new year, dollar strengthened, marking the general decline of the EUR/USD pair. At the moment, the situation has changed a little, but it is still not in favor of the euro. Dollar still pushes first place in the EUR/USD pair.
Experts, paying attention to the long-term negative trend of the tandem, suggests selling of this currency pair. This recommendation is particularly relevant after the return of EUR/USD to the zone below the support level of 1.1158, where the tandem is now located.
The conflict in Middle East intervened in the next chess game played on the financial field between the classic pair EUR/USD. It gave the dollar a head start, but the euro does not forget about its advantages. Analysts believe that despite the current superiority of the dollar, the EUR/USD pair will soon establish a relative equilibrium.
