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01.07.2020 07:40 AM
Powell and Mnuchin duet, coronavirus anti-records and Trump's calm

The dollar index broke through the ceiling of the 96.6-97.6 range yesterday and updated its four-week high, reaching 97.76. But then the greenback expectedly turned down and returned to the familiar band, thereby confirming its vulnerability. Against the background of conflicting fundamental signals, the US currency cannot decide on the vector of its movement, which is why dollar pairs are mainly flat.

Apparently, for the most part, investors cannot decide how to relate to the dollar in the current circumstances. On the one hand, the role of a protective asset is inherent in it - over the past months, with bursts of anti-risk sentiment, traders found refuge in the US currency. Dollar bulls have become the main beneficiaries of the pandemic in the context of the foreign exchange market. On the other hand, the theme of the coronavirus has shrunk at the moment, in fact, to the borders of one country - the United States - so investors are not in a hurry to create the old excitement around the greenback. Of course, an increase in the number of infected is observed in many countries of the world, not only in America. But unfortunately, the United States is out of competition - they are leaders in the number of infected, and in the number of deaths, and in the number of daily increase in cases. For example, if we compare the situation in the United States with the dynamics of the distribution of COVID-19 in the European Union, the difference is striking. Some EU countries have completely defeated the epidemic (for example, Montenegro), while the most affected states (Italy, Spain, France) continue to recover, easing quarantine restrictions along the way. For example, Brussels partially lifted the Iron Curtain yesterday, approving a list of countries whose citizens are allowed to enter the EU. All these exemptions should be viewed through the prism of recovery processes.

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At the same time, the United States continues to update anti-records. For example, if the daily increase in the number of patients rarely exceeded the 25,000th mark in early June, then over the past five days this figure has consistently surpassed the 40,000th target. For example, 45,507 cases of the disease were registered over the past day in the United States. If the current upward trend in the number of coronavirus infected in a number of US states continues, then America could face a 100,000 increase per day. This was warned by not just anyone, but by the country's chief epidemiologist Anthony Fauci. He also stressed that the country "clearly does not have full control over the epidemic."

In turn, the White House remains calm. According to US President Donald Trump, the increase in the number of identified infections is associated with an increase in the number of tests that were conducted by the Americans. "Do fewer tests and the incidence rate will decrease," he said not so long ago during one of his speeches. Later, his assistants specified that it was a kind of irony, but given Trump's straightforwardness, it can be assumed that he adheres to this position. Senior White House officials made it clear that Washington is not going to return the lockdown, while the quarantine regime will be strengthened only locally - in states where outbreaks are recorded (for example, Texas has already made a corresponding decision at the local level).

The dollar is still phlegmatically watching the events taking place. But here it is worth noting that the coronavirus factor either does not affect the greenback's position, or affects it negatively (for example, yesterday's statement by the chief epidemiologist of the United States exerted downward pressure). This suggests that the COVID-19 theme is already playing against the US currency, although everything was exactly the opposite back in early June: surges of panic about the spread of the pandemic turned in favor of the greenback.

It is noteworthy that even Federal Reserve Chairman Jerome Powell did not help the dollar yesterday, although he voiced very optimistic theses. According to him, the restart of the US economy and the resumption of growth in spending and hiring occurred earlier than what the central bank's management expected. At the same time, he said that the weakening of the quarantine is fraught with the fact that the virus will be more difficult to keep under control (which we are now observing).

The US currency ignored his speech. Partly because the text of the speech was published in advance, and also due to US Treasury Secretary Steven Mnuchin's subsequent remarks. He said that in July, he will try to agree with both parties on the issue of allocating additional aid. Earlier, the Mnuchin announced more ambitious plans in this regard – in May, he promised to submit a corresponding bill. However, political feud between Democrats and Republicans, as well as the proximity of the presidential election, did not allow Mnuchin to implement the blitzkrieg. In addition, the Fed and the US Treasury gave different terms for the recovery of the economy yesterday – if the White House expects to see signs of recovery in the second half of this year, the US central bank is more pessimistic. According to Powell, "a full recovery of the US economy is unlikely until Americans feel comfortable gathering in groups indoors."

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Thus, yesterday's decline in the dollar index was due to the coronavirus factor (especially after the statement of the chief epidemiologist) and the contradictory remarks of the Fed chairman and the Ministry of Finance. In general, the index continues to be in the range of 96.6-97.6 in anticipation of tomorrow's Nonfarm.

In the context of the euro-dollar pair, the situation has not actually changed since yesterday, despite a temporary decline in the price to 1.1190. The pair returned to the framework of the 12th figure during the US session. Until buyers have overcome the resistance level of 1.1260 (the middle line of the Bollinger Bands coinciding with the Tenkan-sen line on the daily chart), the pair will be under pressure, and during the day it may again fall to the support level of 1.1170 (the lower line of the Bollinger Bands coinciding with the Kijun-sen line). If you overcome 1.1260, you can consider long positions with the main goal of 1.1360 – this is the upper line of the Bollinger Bands on the same timeframe.

Irina Manzenko,
InstaForex के विश्लेषणात्मक विशेषज्ञ
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