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10.08.2020 10:49 PM
EUR/USD. Mnuchin rushes to the rescue: US Treasury Secretary kept the dollar afloat

The dollar index shows wave-like dynamics today, while remaining within the 93-figure. Key dollar pairs also cannot determine the vector of their movement, repeating the trajectory of the greenback. This situation is due to the contradictory fundamental background that has developed for the US currency on the first trading day of this week.

What happened?

First of all, take note that American politicians have not been able to pass a bill on providing additional assistance to the US economy for several months (namely, since the end of spring). US Secretary of Treasury Steven Mnuchin promised to present a corresponding legislative initiative back in May – and it was about two trillion dollars. His rhetoric provided support for the dollar, as the first aid package, which was adopted in March (that is, at the peak of the epidemic) gradually dried up.

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But Mnuchin's words diverged from the case: the White House could not agree on a draft law with Republicans in Congress. As a result, the document "worth" one trillion dollars came to the consideration of congressmen only at the end of July, while on July 31, the deadline for additional weekly 600-dollar payments to the American unemployed expired. Traders had hoped that the politicians would have time to find a compromise before the 31st, but they were mistaken in their expectations. The negotiation process is mired in a swamp of political recriminations. The fact is that in the spring, representatives of the Democratic party have already introduced a similar bill with a volume of three trillion dollars. It was even passed in the Lower House of Congress (which is controlled by Democrats). But the Senate, which is in the power of Republicans, rejected this initiative, considering it too costly. And now a mirror situation has occurred: Republicans need the votes of Democrats in the House of Representatives, while Democrats insist on increasing the amount of aid to at least $2 trillion.

The talks have been going on for the past two weeks,and they reached an impasse over the weekend.

After that, US President Donald Trump made a non-standard decision in every sense: bypassing the US Congress, he issued four executive orders, which, in particular, provide for the provision of additional unemployment benefits worth $400 a week and the suspension of payments on some student loans until the end of the year.

Everything would be fine, but the problem is that from a legal point of view, the issued decrees do not stand up to any criticism. According to many experts, the president has exceeded his powers, since Congress is the only one that can make decisions on public spending. Representatives of the Democratic Party have already promised to appeal the above decrees in court.

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This news flow put pressure on the dollar: the EUR/USD pair recovered and even tested the 18th figure during the Asian session on Monday and at the start of the European session.

But the pair's buyers failed to develop the upward movement. They were prevented by Mnuchin, who again voiced very optimistic comments. According to him, in spite of mutual criticism, the negotiations in Congress on the above draft law will continue, "and a compromise can be reached this week." Against the background of such rhetoric, the dollar stopped falling and showed character again. In turn, the EUR/USD pair dropped to the middle of the 17th figure.

In addition, the dollar was indirectly supported by a surge in anti-risk sentiment, which was associated with the arrest of influential media mogul Jimmy Lai in Hong Kong. A prominent representative of the democratic movement in this semi-autonomous city was arrested under the recently adopted law on the national security of the PRC - "for collusion with foreign forces." This detention took place amid recently imposed sanctions by Washington against the Hong Kong administration. Today's events may complicate the already difficult relationship between the United States and China.

How do I trade?

The contradictory fundamental background for the pair does not make it possible for us to make unambiguous conclusions regarding the prospects for EUR/USD. Bears cannot consolidate below the support level of 1.1750 at the end of the day, while bulls cannot return to the area of the 18th figure. And although bearish sentiments are still prevailing for the pair, the price is within the framework of the flat, and, therefore, it is not worth making hasty decisions. If the pair remains above the 1.1750 level by tomorrow, it will be possible to open longs with the first target at 1.1800 and the next target at 1.1840 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the four-hour chart). Otherwise, sellers will be able to pull down the price towards the bottom of the 17th figure.

Irina Manzenko,
Analytical expert of InstaForex
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