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USD May Fall Despite Rising Covid-19 Cases, Euro Holding Breath on EU Summit

USD May Fall Despite Rising Covid-19 Cases, Euro Holding Breath on EU Summit

2020-07-19 23:00:00
Dimitri Zabelin, Analyst
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US Dollar Analysis, Coronavirus, Asia-Pacific Stock Markets – TALKING POINTS

  • US Dollar may fall as haven demand dwindles despite spike in Covid-19 cases
  • Euro suspended in uncertainty as policymakers deliberate at a key EU summit
  • US Dollar index could extend decline and retest multi-month support at 1.2806

On Friday, US stocks markets ended on a mostly upbeat note with both the S&P 500 and Nasdaq indices closing 0.28 percent higher while the Dow Jones closed at -0.23 percent. The latter’s decline was led by Financials, and specifically JPMorgan under the “Banks” sub-category. Commodity markets were somewhat of a mixed bag with Brent crude oil prices ending the day 0.53 percent lower while copper and gold were up 0.18 and 0.74 percent, respectively.

The relatively unexciting day could be attributed to investors who were tactically waiting to position their trades until after a conclusion had been reached during a key summit among 27 EU leaders. Leading up to the conference, the Euro rallied on the perhaps overly-optimistic assumption that officials could uniformly agree on what is an unprecedented – and some might argue – controversial proposal.

In short, it involves the distribution of a EUR750 billion fund aimed at alleviating the pain of countries and sectors hit hardest by the coronavirus pandemic. 500b would be in the form of grants, and 250b would be in loans. The meeting has been extended into Sunday as frugal Northern states continue to insist on amendments including changing the grant-to-loan ratio and greater say in where the funds ought to be distributed.

To learn more about the nuances of politics and how they might impact financial markets, be sure to follow me on Twitter @ZabelinDimitri to see my in-depth, geopolitical weekly outlook.

Monday’s Asia-Pacific Trading Session

Asia-Pacific’s Monday trading session brings a relatively light raft of economic data. Consequently, traders will likely focus on the aftermath of the European summit. Considering the gridlock, the Euro may trim some of the gains that it reaped last week. EUR/USD in this regard may decline, though not necessarily due to US Dollar strength but more so as the result of Euro weakness. How will the Greenback behave against everyone else?

US Dollar Outlook

The US Dollar – as expressed by an index with USD vs JPY, AUD, EUR and GBP – has been experiencing an aggressive selloff after spiking in mid-March. The Greenback appears now to be stuck in a stubborn, narrow congestive range between frequently-tested support at 1.2806 and resistance at 1.3131. Looking ahead, the US Dollar may find trouble gaining upward traction and may instead seek to retest the critical floor.

US Dollar Index (Currency Basket of JPY, AUD, EUR and GBP) – Daily Chart

Chart showing US Dollar Index

US Dollar index chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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