27.10.202011:19 Ανάλυση και κριτικές Forex: Ironic turn before the elections: USD is strengthening after its total weakness

Long-term review

Exchange Rates 27.10.2020 analysis

The markets never stop to be amazed by the US dollar, which still shows growth after an exceptional decline. This up and down movement raises concerns about the dollar's safety margin, since it is struggling to remain upwards.

Unlike last month, this month's final week did not bring any positivity to the US currency. The indicated currency remains extremely volatile before the US presidential elections. As a result, the markets that tend to play for the election results, but not always successfully are confused. In this situation, the USD is losing its positions, showing either a strong decline or a sharp reversal of growth.

Today, the US dollar remains weak against most major currencies amid the second wave of COVID-19 and the falling national economic recovery. At the moment, the COVID-19 situation in the US is much better than in Europe. The economy is also not collapsing, but this is not enough for the dollar to grow. Analysts emphasize that the relatively positive environment does not support the upward trend of the EUR/USD pair. Today, this pair is not overly responsive to current difficulties, so it is trading near the range of 1.1834-1.1835, which is almost the same from yesterday.

Experts point out the dollar's paradoxical weakness, explaining it by the growing uncertainty about the US election. What's worsening the situation is the uncertainty about the adoption of the second stimulus package, which contributes to the withdrawal of money from the system and the growth of the USD. Experts believe that the current weakness of the US dollar will continue until the election, and the EUR/USD pair is likely to decline to the level of 1.1500 by the end of this year.

The dollar's unstable dynamics is strongly influenced by the prolonged economic recovery in the US, which is greatly affected by the COVID-19 pandemic. As a result, analysts warn that the form of recovery (K-shaped) can be quite complex. Lael Brainard, a representative of the Board of Governors of the US Federal Reserve, voiced out the same version. She said that the disastrous impact of the pandemic is holding back the recovery of the US economy. Therefore, an additional stimulus and budgetary funding are necessary in order to transform the existing K-shaped profile of the US economy into a broader process.

It should be noted that the K-shaped economic recovery implies simultaneous growth in some sectors and a strong lag in others. Experts believe that the service sector may be the most affected. The K-shaped recovery process is long and uneven, and most industries are experiencing significant difficulties, which has a very negative impact on the dollar's dynamics.

Experts are worried about the unpredictability of dynamics of the US dollar, as they believe that the excessive volatility will tire the currency out. But fortunately, the US currency continues to increase, despite growing problems. It is not afraid of any collapse in the market, even before the US elections. Therefore, analysts expect its dynamics to change positively in the future.

Larisa Kolesnikova,
Analytical expert
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