The relationship between the American and European currencies in the EUR/USD pair is obvious, and if one falls, it will certainly affect the other. Although the total fall of the dollar is favorable for the euro in the short-term, experts say that it may turn out to be extremely negative in the long-term.
Currency strategists at MUFG believe that the prospects for a further upward trend in the EUR/USD pair are somewhat unclear. At the beginning of this week, the actions of the bulls kept the pair from falling below the level of 1.1700. A successful assault on the peaks in the EUR/USD pair, recorded on Tuesday, August 13, could lead to a breakout of the resistance level of 1.1900. However, the Bank emphasizes that the pair is approaching this mark only now. On the morning of Tuesday, August 18, it cruised near the range of 1.1894 - 1.1895, trying to break through this barrier. These attempts were successful: the determination of the pair helped to cross the boundaries of the range and reach the level of 1.1900.
The market is worried about the fact that the size of the net long of the leading players in the EUR/USD pair has reached impressive values. Based on CFTC, this figure has expanded to 200 thousand contracts. According to MUFG analysts, this casts doubt on the euro's ability to rally sustainably. Its renewal in the short term is hardly possible, the bank says. Skepticism is also facilitated by the continued bullish sentiment towards the indicated pair. From a technical point of view, the turning point between recession and rally, that is, a critical point for the bulls, is the level of 1.1700. A breakout of this level and further collapse may be a signal for the total closure of long positions in the EUR/USD pair.
In the classic pair, experts are sure that the dollar is the most difficult. The threat of a possible rejection of dollar payments hangs over the USD. Currency strategists at Commerzbank believe that the use of the USD as a global means of payment will be in jeopardy in the medium-term. Meanwhile, in the long-term, the dollar will finally lose its attractiveness for investors. The use of the US currency as a key instrument of world trade and a reserve currency for central banks will be questionable.
According to economists, the dominant position of the dollar is gradually disappearing. The long-term problems of the US economy and the pandemic COVID-19, which became their catalyst are among the reasons for this decline. It can be recalled that the US economy is undermined by a huge budget deficit, high risks of a deflationary recession, and a sharp decline in national savings (including the income of households, private and state enterprises). Previously, the authorities compensated for the lack of their own savings by attracting foreign investment, which led to an exorbitantly inflated public debt. The US economy has been happy for a long time thanks to the USD's exceptional position in global trade. However, experts are sure that the worsening of the current situation can let the dollar sink.
According to analysts, in the event of a sharp sinking of the dollar in the EUR/USD pair, the Euro will also go to the bottom. This process can take months, but the balance in the pair will be upset. Experts believed that at first, the euro would be in demand, but then its rise would be replaced by a decline. They expect a harmonious interaction of the main world currencies in the EUR/USD pair in the medium-term.
