The EUR/USD is stabilising against 1.1180/1200 – US dollar to tip the scales?

Julij 03, 2020 13:00

Source: Economic Events July 3, 2020 - Admiral Markets' Forex Calendar

For the weekly close, global financial markets and Forex could see subdued volatility. This is mainly due to the shortened US trading hours coming from the US Independence Day on Saturday, July 4 (for a change in trading hours please check here).

Still, the fundamental and the technical picture in the EUR/USD is very interesting for the days ahead: the EUR/USD kept on stabilizing against the region around 1.1180/1200 for a potential long trigger, especially with the focus on 10-year US Treasury yields and the region around 0.60%.

A break below that level will likely result in the yield differential between European and US yields continuing to narrow, favouring gains in the EUR/USD, activating 1.1400/1450 as a target on the upside.

But, while we are very sceptical in regards to the US dollar and expect the USD to depreciate, not only driven by a drop in US yields but also in response to the Fed continuing with their US Treasury purchases. There are also some downside risks in the EUR/USD, at least in the short-term:

While we could see global central banks winding down outstanding USD liquidity swap lines over the last few weeks (resulting in a declining Fed balance sheet), we could imagine this situation to tense up again in the near-term, which could see the US dollar gain and push the EUR/USD lower.

Our technical line in the sand here can be found around 1.1150, a break lower activates 1.1000 on the downside:

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between May 3, 2019, to July 2, 2020). Accessed: July 2, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EUR/USD fell by 10.2%, in 2016, it fell by 3.2%, in 2017, it increased by 13.92%, 2018, it fell by 4.4%, 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.

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