Repeated attempts by the European currency to dominate the EUR/USD pair have so far been unsuccessful. From time to time, the euro breaks ahead, but the demand for the dollar has grown amid the flight of investors into protective assets, and remains to be in lead again. Experts record the next "tug of war" between the "bulls" and "bears" in the classic pair.
The increase in demand for the US currency is due to increased trade tension between the United States and other countries, as well as concerns about the second wave of the COVID-19. As a result, the euro fell again into the shadow of its rival for the EUR/USD pair, although it received significant support from the ECB before. It can be recalled that on Thursday, June 25, the regulator launched a new instrument for providing liquidity. It is intended for central banks of those countries that are not part of the Euroblock. Analysts say that this tool is necessary to enter into repurchase agreements. It is expected that liquidity will be provided by debt securities of Eurozone countries or supranational institutions denominated in the euro.
According to experts, this can help normalize the situation in the financial markets. The implementation of new measures adopted by the ECB, significantly supported the "bears" on the euro. They were able to reach a decline in the EUR/USD pair to a support level near 1.1172 - 1.1167 (this is 38.2% of the tandem growth recorded since May 14, 2020). According to experts, breaking through these levels will pave the way for correction to the lower border of the channel which is around 1.1134 and below.
The current situation added pessimism to the bulls on the euro. On Thursday, June 25, they sought to consolidate, first near the level of 1.1224, and then to win the support level of 1.1170 in the EUR/USD pair from the "bears". However, analysts say that the attempts of the "bulls" failed miserably. Negative impulses that "cut" the wings of buyers were concerns about the further collapse of the S&P 500 index and the possible introduction of import duties by the US on goods from the EU worth $3.1 billion. In the case of implementation of such a scenario, experts remind that the Euro is expected to fall significantly. As for the S&P 500 index, a decline below the psychologically significant level of 3.000 will be a disaster for the" bulls " on the EUR/USD pair. Currently, this indicator is located near the level of 3.083.
On Thursday evening, after the ECB announced new measures to increase liquidity, the single currency dropped 0.3% to 1.1222. Friday, June 26, started with this value. This morning, the EUR/USD pair hovers around the range of 1.1219 - 1.1221, sometimes rising higher. However, the general not very positive background puts pressure on the EUR/USD pair, preventing it from increasing and conquering the next peaks.
Earlier, support for the European currency was provided by encouraging macroeconomic data on the eurozone. It can be recalled that on Tuesday, June 23, reports were published on business activity in the Euroblock countries, which showed good results. The leaders in these indicators were Germany and France. In the manufacturing sector of Germany, the index of business activity amounted to 44.6 points compared with 36.6 points recorded in May, while the indicator in the service sector rose to 45.8 points against 32.6 points noted in the last month of spring.
According to experts, France returned to the growth of business activity: all its economic indicators exceeded 50 points. For example, the index of business activity in the manufacturing sector reached 52.1 points, and the service sector indicator soared to 50.3 points compared with the critical 31.1 points recorded in May.
Yesterday's report by the GfK research group regarding the German economy also pleased the market and gave confidence to the European currency. According to data from June 25, the leading consumer confidence index in Germany managed not only to recover, but also to gain weight. According to GfK calculations, the July indicator rose to -9.6 points compared to -18.6 points in June.
Against the background of the general macroeconomic positive, the Eurocurrency has strengthened its position against the US currency. An additional impulse of this growth was the hope for an early recovery of the European economy in the second half of 2020. At the same time, many experts fear that the "pulling the blankets" over the euro will upset the fragile balance in the EUR/USD pair.
However, the US currency is not losing ground and continues to strengthen amid growing demand for assets of the "safe haven". The dollar remains to be in the lead, pushing the euro back and not letting it get to the top. At the same time, a number of currency strategists, including Morgan Stanley experts, expect a significant weakening of the dollar amid the restoration of the global economy and the simultaneous strengthening of the euro. Morgan Stanley is confident that the euro will rise to the level of 1.2600 in the near future, and recommend buying the EUR/USD pair at a decline.
