Last week, the greenback managed to win back some of its losses, causing a pullback in some of the currency pairs. However, it is still difficult to assess the prospects of this movement, given the huge volume of short positions on USD and high risk appetite.
Yesterday, US Trade Representative Robert Lighthizer, Finance Minister Stephen Mnuchin, and Chinese Deputy Prime Minister Liu He held phone talks and confirmed their commitment to the phase 1 of the trade deal.
"It is encouraging that despite a rather harsh stance of both sides Washington and Beijing still want to maintain economic relations. This adds to the optimism," experts at National Australia Bank said.
In addition, The Financial Times reported that US authorities are considering fast-tracking approval of a COVID-19 vaccine being developed by AstraZeneca and Oxford University.
The US dollar is currently at a crossroads, trading near the level of 93, with little changes in a month after falling about 10% from late March to early August.
Investors prefer to refrain from active trading as they are looking ahead to a speech from Fed Chairman Jerome Powell later in the week, which could shift the US dollar in any direction.
The Fed Chairman is expected to give a hint on whether the regulator will allow the inflation to exceed the target levels. This will mean that the central bank will keep the interest rates low for a longer time, which will put pressure on the American currency.
"There is an opinion that the Fed may change its inflation target and move to the average level from the current target of 2%. However, markets had similar expectations long before that, but the regulator disappointed them, giving the dollar an impulse to grow. History may repeat itself," analysts at MUFG noted.
On Tuesday, the main currency pair is trading near the level of 1.18 unable to move far from Monday's levels.
According to experts, the short-term trajectory of the EUR/USD pair will depend on the idea that the European economy is outstripping the American one in terms of recovery. Besides, further monetary policy of the Fed will shape the pair's trend.
The latest macroeconomic data from Europe failed to give bullish momentum to the euro. At the same time, investors are trying to buy the US dollar. According to experts at Westpac, those players who were recently in short positions on USD are very nervous and are taking money off the table.
"If data releases confirm the negative turn in terms of macro outlook in Europe, then it will turn the euro negative," strategists at OCBC Bank said.
"The level of 1.1700 remains the key level for EUR/USD. A breakthrough will trigger a stronger sell-off. The pair may have to overcome the resistance at 1.1850-1.1880 to make the trajectory look more comfortable for the bulls," they added.
