Powell, coronavirus and the escalating political tensions reminded traders of the dollar's status as a "safe-haven" asset. Thus, during the American session on Tuesday, the USD index reached a local peak of 97.172, up from its value yesterday morning which was 96.4-96.5 points. Further growth of the indicator, however, remains unclear, as during the Asian session today, the dollar began a slow drop down, indicating the waning bullish mood. Dollar bulls are in need of a stronger excuse or news background, as the current uncertainty in the market provides only temporary support to the US currency.
The macroeconomic news published yesterday, which supported the dollar, also has their own pros and cons. For example, Fed Chairman Jerome Powell said yesterday that the US economy may have already reached its bottom and is now in the process of recovery, claiming that the latest Nonfarm and retail sales data are clear evidence of this assumption. In addition, Powell once again rejected the idea of negative rates, mentioning the negative and side effects of such a step. According to the Fed's assessment of the prospects for the US economy, long-term forecasts for inflation are "stable", and unemployment will gradually decline, which will lead to a rise in the labor market.
The above factors have helped the US dollar rise and gain a foothold throughout the market, but Powell's rhetoric included other remarks that were not so pleasant for the currency. In particular, the issue on controlling the yield curve is still on the regulator's agenda, and although no decision has been made yet on this issue, it is still being actively discussed in the organization. In addition, the uncertainty in the period and extent of economic recovery still remains, so the Federal Reserve promised that it is ready to use all available tools to support the US economy.
To sum up his report, Powell repeated that the Fed will keep rates at the same level until the goals related to the level of employment and inflation are achieved, and a full economic recovery is unlikely "until the spread of coronavirus is limited."
In other words, Powell voiced an optimistic view of the future, but at the same time noted the high degree of uncertainty that remains today and will surely remain in the foreseeable future. He also did not deny the possibility of using a yield curve control as a new instrument of monetary policy, which has no negative impact on the US dollar.
The actions of Fed Chairman Powell were quite ambiguous so the rally of the dollar halted. Other factors influenced the US currency in a similar way, for example, the panic about a second wave of the pandemic in the US was partially offset by the speech of Vice President Mike Pence, who accused the media of inducing panic. Later, White House spokeswoman Kayleigh McEnany assured reporters that there was no reason to talk about the second wave of the pandemic as according to her, the proportion of positive results in a survey of US citizens to identify new cases of Covid-19 was less than 6%
The rally of the dollar also paused yesterday due to the escalating geopolitical tensions between many countries, which include an armed skirmish on the border of India and China, as well as an escalation of tension on the Korean peninsula. So far, both situations are "pausing", as Delhi and Beijing began negotiations on a de-escalation on the demarcation line, while North Korea did not dare to send troops into the demilitarized zone (similar threats sounded from Pyongyang yesterday).
Although both conflicts are still on the agenda, traders focused on other fundamental factors, so the dollar still lost another trump card for its further growth.
Thus, although the USD index soared upwards yesterday, a rally did not commence because a number of factors prevented it from doing so. The dollar could also give impetus to the White House, which last week promised to present a legislative initiative regarding the provision of additional assistance to the country's economy, but since the Trump administration is silent about this, the dollar, in turn, gradually lost ground yesterday.
As for the EUR/USD pair, traders are in no hurry to open large sell positions since they are waiting for the EU summit on Friday, which will discuss the European Commission's 750 billion anti-crisis plan. Thus, given such an ambiguous fundamental background, as well as the fact that the bears of the pair could not overcome the lower border of the range 1.1250-1.1350 yesterday, buy positions from current positions may be considered today, targeting the level of 1.1350.
