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24.07.2020 10:59 AM
EUR/USD: Be wary of buying the euro at current highs

The euro continues to rise, despite the surge in coronavirus infections around the world.

This is because the recent rise in new cases deteriorated a number of economic indicators including the US labor market, which is one of the influencers on the USD rate. In addition, the dollar has weakened due to the expiration of some federal support measures, which seriously threatens the recovery of the US economy.

Fortunately, the White House is already preparing a new package of measures, but it is unlikely to provide significant support to the dollar, since the trend has changed recently and the injection of next billions no longer contributes to the growth of confidence in the future, as it was at the very beginning of the pandemic. Sooner or later, the money will have to be returned and the bloated billion-dollar holes in the budget should be reduced, which will not benefit the economy in the future.

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If the support provided by the Fed is not extended, many households will experience a financial shock, as yesterday's labor market data indicated a gradual rise in unemployment claims. In addition, the deterioration of the situation will certainly affect the barely recovered consumption, which will affect the US economy.

The report published by the US Department of Labor indicated that the count of initial applications for unemployment benefits rose to almost 1.42 million in the week of July 12 to July 18, while the week before it applications were just 1.31 million. The Economists expected the figure to drop slightly to 1.3 million. Meanwhile, the number of secondary applications from July 5 to July 11 was about 32 million.

If coronavirus infection continues to rise in the United States, the US labor market will experience heavier problems in the future.

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Meanwhile, the slight recovery of the economic index, which reflects the economic cycles in the US, leveled the situation in the country. The report published by the Conference Board showed that the index of leading indicators rose by 2.0% in June, reaching 102.0 points, which is a good news for the economy.

Another report on manufacturing activity in the area of Kansas Fed added hope to economic recovery this summer. According to the report, activity in July of this year continued to grow, albeit in small topics, even against the background of a high number of cases of coronavirus infections in the region. The composite index rose to 3 points in June, while economists predicted the indicator to rise to 5 points.

As for Europe, the data on consumer confidence in the eurozone, which were ignored by the market, became a rather alarming call for buyers of the European currency. According to the report, the preliminary index of consumer confidence fell to -15.0 points in July, although it was predicted to recover to -12 points. This suggests that, despite a gradual economic recovery in the past few months, consumers are pessimistic about the future, fearing new infections and a return to quarantine and social distancing measures that are still in place in many regions of the eurozone.

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As for the technical picture of the EUR / USD pair, the price will increase, if the bulls manage to push the quote above the level of 1.1590. Such could raise the price up to the highs of 1.1650 and 1.1690. But if the bears are able to lower the quote below 1.1590, profit-taking on long positions will begin, which short the price to the lows 1.1540 and 1.1490.

Jakub Novak,
Analytical expert of InstaForex
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