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29.10.2020 01:50 PM
EUR / USD: dollar gains 0.5% while euro suffers uncertainty amid COVID-19 crisis

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The greenback managed to gain about 0.5% for the current week. The slow progress in negotiations on the stimulus package to support the US economy, as well as the uncertainty of the US presidential election, boosted demand for the US dollar.

According to the latest polls, Joe Biden continues to lead the race. However, even if he wins, no additional incentive measures may follow until the end of the year.

On Thursday, the greenback holds on to recent gains, trying to move further upward from support at 93 points. The dynamics of the USD will soon be determined by the US GDP data for the third quarter and investors' appetite for risk.

Analysts expect the US economy to recover from a sharp decline in the second quarter. The main questions are how much the indicator has improved and whether it will matter to investors, as this data already lags behind the events of the past few weeks.

The US government has so far ignored the record rate of growth in the number of COVID-19 cases in the country. Several states have already introduced restrictive measures, however, if others do not follow this example, the recovery of the national economy could last in the fourth quarter.

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If the US GDP growth in July-September exceeds experts' expectations, the greenback will continue to strengthen in relation to its main competitors, including the euro.

The EUR / USD pair slipped to weekly lows around 1.1710 amid the strengthening of the second wave of coronavirus in the Eurozone, as well as rumors that the ECB may consider additional stimulus at the next meeting.

On Wednesday, Germany imposed a partial quarantine for a month. France announced the introduction of a nationwide quarantine until December 1.

Previously, economists expected the ECB to leave monetary policy unchanged following the October meeting. However, the rapid deterioration of the epidemiological situation in the EU may prompt the regulator to take action.

The ECB is unlikely to reduce the rate on deposits (it is already -0.50%), but it may announce an acceleration in the pace of bond purchases.

In any case, the regulator cannot say anything that would support the single currency. The European Central Bank is preparing to soften the policy, while its American counterpart is quite pleased with the current position. According to experts, this is the main reason why the main currency pair should trade closer to 1.16 than to 1.18.

The almost simultaneous announcement of quarantines in Paris and Berlin, as well as expectations that the ECB might decide to act now, have led to a sell-off in the euro.

"Strengthening bearish momentum indicates continued downside risks for EUR / USD. However, only the pair's close below 1.1685 will signal its readiness to continue its steady decline. At this stage, the likelihood of this scenario being realized is very high, unless EUR / USD rises above 1.1835 in the next two days," said UOB experts.

Viktor Isakov,
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