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FX.co ★ EUR/USD: The Federal Reserve is pleased with the current pace of economic recovery in the US. The euro has a low chance of increasing sharply in the short term.

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Forex Analysis:::2020-10-20T09:23:59

EUR/USD: The Federal Reserve is pleased with the current pace of economic recovery in the US. The euro has a low chance of increasing sharply in the short term.

The unprecedented optimism of euro bulls, which could be observed in the market yesterday, is unlikely to continue amid the deteriorating situation with the coronavirus. The disappointing news about the vaccine being developed in the United States has already put pressure on stock markets, and it is rather soon that investors will finally realize that the European Central Bank would not be able to avoid lowering the interest rates, which will add pressure on the European currency.

EUR/USD: The Federal Reserve is pleased with the current pace of economic recovery in the US. The euro has a low chance of increasing sharply in the short...

Many leading agencies have pointed out that any decrease in interest rates will knock the euro out, since as of the moment, the only thing that is keeping the currency afloat is the absence of changes in interest rates and the extension of the ECB's bond purchase program ...

Aside from that, the central bank is concerned about having a too-expensive euro, thus, it may consider adopting new measures in the future. Christine Lagarde said that easing the monetary policy will not put significant pressure on the currency, and since economic recovery continues to slow down in Europe, the ECB may resort to such an action. Despite that, traders are not keen yet on selling-off the euro, but this is because it is still unclear what measures the bank will take in the future.

As for economic statistics, the reports published yesterday did not affect the market much, but this is because they are not of particular importance. Nonetheless, it is still sanguine to hear a good report on the US housing market, which, according to the National Association of Home Builders (NAHB), has pulled up to 85 points in October. The more buyers there are in the housing market, the better it will affect the economic picture as a whole. It was the record low interest rates that continue to support strong demand, aside from the fact that there are no problems with credit and access to liquidity in the United States.

EUR/USD: The Federal Reserve is pleased with the current pace of economic recovery in the US. The euro has a low chance of increasing sharply in the short...

Yesterday, some Fed representatives also delivered optimistic statements about the US economy, which were in line with the remarks of Fed Chairman Jerome Powell.

For example, Rafael Bostic said that he is satisfied with the current monetary policy, as the economy is recovering quite well and it will take a long time before the Fed starts thinking about raising rates or curtailing support. Bostic believes that once the emergency support programs are completed, the Fed's new policy will play a key role in reducing inequality and closing the social divide created by the coronavirus pandemic among the population.

His fellow Fed spokesman, Richard Clarida, is also confident that additional support from monetary and fiscal policy will be needed in the future, as the current recession was the deepest in post-war US history. Clarida noted that economic data, which has come in since May this year, has been unexpectedly strong, and the continued economic growth amid the growing number of coronavirus infections once again proves the strength of the economy.

However, until now, the US government still has not resolved the issue on funding, as both Republicans and Democrats do not want to make concessions on the topic. As of the moment, the US dollar is rising, but this is because traders are still hoping that the government will decide on an additional fiscal stimulus soon. If its adoption is postponed to a later date, say after the US elections, then the dollar could collapse in the market. Nonetheless, should the Democrats win the November elections, a larger stimulus package is likely to be developed.

With regards to the EUR/USD pair, a large upward move will occur if the quote breaks out of the 18th figure, however, it will not be that easy considering the current situation. But still, if the bulls manage to make it happen, the pair will easily return to last week's high, which is 1.1830, and then maybe reach the price levels 1.1870 and 1.1920. Meanwhile, pressure on the euro could return if the quote moves below 1.1740, and such will result in the demolition of many buy stop orders, which will quickly push the pair to last week's low, which is 1.1685.

Analyst InstaForex
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