EUR/USD: bearish prospects

EUR/USD: bearish prospects

2020-08-04 • Updated

Some analysts believe the euro will lose its gains in the third quarter. What are the reasons?

Indeed, EUR/USD has shown the best performance for almost a decade. It managed to surge from 1.1200 to 1.1900 during July. However, economists from Danske Bank foresee the pair to retest 1.1200 again.

Why did EUR/USD rise?

Firstly, the better-than-expected EU data drove the euro upward during the previous month. In addition, the 750-billion-euro EU recovery fund improved the market sentiment and boosted the EUR too. Moreover, EUR/USD kept rallying because of the weak US dollar. Main reasons for the low demand for the greenback were rising coronavirus cases in the country and low interest rates. Also, dovish statements from the Fed and disputes over the fiscal stimulus added headwinds to the USD.

Long-term forecasts

Analysts from the ATFX have even worse forecasts than Danske Bank. They said that EUR/USD is going to slump in the third quarter to 1.0990. In fact, US new infections have started to decline. It basically means that the economic activity will soon recover in the USA. Moreover, today the US ISM Manufacturing PMI turned out better than expected. It was 54.2, while the forecast was 53.6. It should push the pair down.

Technical tips

EUR/USD has just bounced back from the key support at 1.1700. If it breaks through the 61.8% Fibonacci level at 1.1820, it will open doors towards the key psychological mark at 1.1900. However, the relative strength index indicates that the EUR/USD’s rally is overdone. If it falls below the support at 1.1740, it will clear the way towards the yesterday low at 1.1700 and then to the 50.0% Fibonacci level at 1.1600.

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