The dollar index continues to fall, reacting to the negative fundamental background. The pace of the spread of the coronavirus in the United States and the inability of American politicians to agree on a new financial aid package put pressure on the greenback. These are, so to speak, mainstream topics that are in the focus of investors' attention. Yesterday they were joined by concerns about the pace of recovery in the US labor market. The report of the ADP agency, which is a harbinger of Nonfarm, was rather disappointing, putting additional pressure on the US dollar. As a result, the dollar index finally settled within the 92nd figure, simultaneously updating two-year lows.
But let's start with the coronavirus. Let me remind you that US President Donald Trump made a rather bold statement the day before yesterday that the virus is finally receding in the United States. The dollar reacted positively to these words, although the president was criticized by many American experts, saying that it was too early to draw such conclusions. The dynamics of the incidence was indeed descending - in early August. But in recent days, the daily increase in the number of infected people has become alarming again. So, 54,000 patients were registered on August 4 and 55,000 on August 5. The rate of deaths also jumped - yesterday and the day before yesterday, the daily increase in deaths from COVID-19 exceeded the 1,300 mark (again, after a temporary decline in early August). The three leaders in the anti-rating are California, Florida and Texas. For example, 5,559 new cases were registered in California yesterday, and 4,409 cases in Florida.
Therefore, we can conclude that Trump really drew hasty conclusions - at least the dynamics of the last two days is alarming.
At the same time, US politicians still cannot agree on an additional package of financial assistance. The Republicans' bill is already being discussed for the second week (despite the fact that additional unemployment benefits were stopped being paid on July 31), but they have not come close to a compromise solution. Every day, representatives of the parties declare that "progress has been made", but the de facto situation remains in limbo. Moreover, yesterday, the speaker of the House of Representatives Nancy Pelosi (representative of the Democrats) said that the timing of the negotiation process "remains uncertain." However, she could not say whether an agreement would be reached this week. It is obvious that the protracted political battles in Congress also have a background pressure on the dollar.
Taking into account all the above circumstances, tomorrow's release will play a key role for the dollar, at least in the medium term. Nonfarm has always been of particular interest to the market, but in this case the figures will be indicative. The June figures reflected a gradual but stable recovery in the US labor market. Key indicators came out in the green zone: the unemployment rate fell to 11.1%, and the increase in the number of people employed in the non-agricultural sector was almost 5 million (4,800,000). At the same time, wages were disappointing: the average hourly wage fell to -1.2% (on a monthly basis).
According to general forecasts, the US labor market will continue its recovery in July: the unemployment rate should fall to 10%, and the growth rate of the number of people employed in the non-agricultural sector should increase by 1.5 million (in the private sector of the economy - by 2.2 million). Salaries should also show a positive trend - both on a monthly basis and on an annualized basis.
But the latest report from the ADP agency alerted and worried traders. Instead of the projected growth of 1,200,000, it grew by only 167,000 (!). Moreover, in previous months, this report accurately reflected the dynamics of the recovery of the US labor market. All this suggests that the official figures may disappoint investors, putting additional pressure on the greenback.
And one more thing: Nonfarm data is two weeks behind the reports on claims for unemployment benefits. Let me remind you that this indicator has been steadily declining for 14 weeks, but it slowed down its decline in mid-July (when the rate of spread of the coronavirus in the United States began to grow again), and then began to show a slight increase. A very alarming signal on the eve of the release of Nonfarm.
Thus, the dollar is still under impressive pressure, which can also be fueled by weak Nonfarm data. This fundamental picture made it possible for the bulls of the EUR/USD pair to return to the area of the 18th figure and even test the 19th price level. At the moment, buyers retreated, but retained the potential for further growth. The technical picture also indicates the priority of long positions: the price on the daily chart is between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator and the Kumo cloud. All this suggests that longs can be considered for the pair - with the first target at 1.1950 (the upper line of the Bollinger Bands on the same timeframe).
