The US currency started the trading week very phlegmatically amid an empty economic calendar and a contradictory fundamental background. The dollar index moved away from the local highs reached last Friday and fluttered at the bottom of the 93rd figure.
In turn, the weekend was not empty - the latest events in the US Congress reminded traders that the United States will soon find themselves in a zone of high turbulence in connection with the upcoming presidential elections, which will be held in the context of the coronavirus crisis. Political battles between Republicans and Democrats negatively affect the positions of the dollar – for example, the greenback could not continue its upward movement today, which began on Friday. The uncertain outlook for US-China relations is also putting pressure on the currency. In turn, the euro is under pressure from its problems: PMI indices published at the end of last week reflected a slowdown in the recovery of the eurozone economy. Such a contradictory background forced EUR/USD traders to trade flat: bears could not lower the price to the bottom of the 17th figure, and bulls can hardly keep the pair at the border of 17 and 18 figures. In general, both sides are waiting for an information driver, as the events of the weekend left more questions than answers.
Let me remind you that in August, there were heated discussions in the United States about voting by mail. According to representatives of the Democratic party, this option is the most optimal amid the coronavirus pandemic: in this case, Americans will be able to participate in elections without the risk of getting infected at the polling stations. Representatives of the Republican party (including US President Donald Trump) believe that "postal voting" can lead to large-scale fraud. At the center of the political standoff was the US Postal Service (USPS), which is a loss-making enterprise and needs government support. And especially during the presidential elections, when the workload of the service will increase several times. The US media has repeatedly criticized the work of the USPS, speaking about frequent cases of failures and delays. The service's management also warned that it does not guarantee the timely delivery of ballots for counting votes in presidential elections without additional support. But Trump refused to provide financial assistance, saying that he would not "sponsor falsifications". Commenting on his decision, he said that he "wants to get a clear result by the end of voting day, and not controversial data that will be challenged in court."
The Democrats, who last weekend held an extraordinary meeting of the House of Representatives and approved additional funding for the country's Postal Service worth $25 billion, do not agree with this position. These funds, in particular, should be used to increase the level of processing of mail items in the presidential elections. But the catch is that the House of Representatives is controlled by Democrats, while the Senate is controlled by Republicans. Therefore, the above bill is likely to be blocked in the Upper House of Congress. And even if by some miracle he is approved by the Senate, Trump will use his veto power, to overcome which Democrats and Republicans will have to unite, which is extremely unlikely.
In other words, the "mail issue" is a time bomb for traders. Senators will return from summer holidays only in mid-September, but now many representatives of the Republican party have already announced that they will not support the bill passed by the Lower House. Trump can also express his opinion on this issue today, putting additional pressure on the dollar.
Political uncertainty is always a negative for the US currency. Therefore, recent events in the United States have and will continue to exert background pressure on the greenback.
Another factor of uncertainty is related to China. To be more precise - with the prospects for further relations between the US and China. According to unofficial information, the parties continue to prepare the ground for trade negotiations. According to Bloomberg, preliminary consultations are currently underway, and representatives of both countries are interested in the dialogue. But at the same time, Trump himself continues to voice anti-Chinese rhetoric in the public sphere. For example, last weekend in an interview with Fox News, he said that the US economy can break away from China, which is the largest buyer of goods produced in the United States. Trump said "we don't have to" do business with China, and then later mentioned about decoupling as a decrease in the correlation between the two economies is the direction in which it will definitely take steps if Beijing's attitude towards America is wrong. It is worth noting that the idea of reducing the correlation between the two economies is not new. But previously, these thoughts were voiced mainly by Trump's economic advisers and the US treasury secretary. Now the head of the White House himself has supported this initiative.
In other words, according to unofficial information, preparations for the talks are in full swing, despite the difficult political relations between Beijing and Washington. On the other hand, Trump continues to make harsh statements about China. In my opinion, this state of affairs will continue until the end of the presidential campaign: Trump will in any case relay anti-Chinese rhetoric amid the coronavirus crisis. Any rapprochement with the PRC after the accusations he voiced against this country will hit his already unstable rating.
Thus, EUR/USD traders digested the negative PMI data, focusing on American events. European indices knocked down the euro, but failed to become a catalyst for the downward trend. While the fundamental background for the dollar remains controversial.
From a technical point of view, long positions in the EUR/USD pair should be considered after overcoming the 1.1835 mark (Tenkan-sen line on the daily chart): in this case, buyers will confirm their dominance in the pair. The next target for the upward movement will be 1.1920 - this is the upper line of the Bollinger Bands indicator on the same timeframe.
