Today, the US dollar index demonstrates a slight increase at the start of trading. Greenback is strengthening its position against the backdrop of strengthening anti-risk sentiment. Traders are again using the dollar as their primary defensive tool, despite the political instability in the US and another failure in negotiations over a new aid package for the US economy.
A similar situation was observed last week. For five trading days, traders could not decide on what factors to focus their attention on. Coronavirus and political battles in the United States have become mainstream themes, alternating one after another. Initially, investors were alarmed by the news flow from Europe: the surge in the incidence of COVID-19 forced the key countries of the European Union to again resort to tightening quarantine restrictions. This fact provoked an increase in anti-risk sentiment, after which the dollar again won the laurels of the favorite in the foreign exchange market.
However, on Friday, the greenback once again demonstrated its vulnerability amid the pre-election battles in the United States. On the last day of the trading week, a final televised debate between Trump and Biden took place, bringing back fears of a prolonged period of post-election political instability in the United States. According to most observers, the verbal duel ended in Biden's favor - but with a minimal margin. This is also indicated by the results of several polls.
But the minimum percentage advantage does not play any role here. In fact, there was no clear winner among the candidates: the debate ended in a draw, while Biden made a serious mistake by mentioning the name of the Nazi leader in an incorrect context. This fact suggested that Donald Trump at the finish line of the pre-election race will narrow the gap with his main rival (before the last debate, the gap was 11%), increasing his chances of re-election. By the way, 4 years ago, at the same stage of the election campaign, Hillary Clinton also predicted the highest chances of winning. Everyone knows what the final result was. In addition, it is necessary here to take into account the specifics of the American electoral system - for example, the results of nationwide surveys need to be correlated with indicators in each individual state. Otherwise, the nationwide survey can be compared to the "average body temperature in the hospital".
Many analysts view the reaction of the American currency to political battles in the United States in the context of a simple question - which candidate is better for the dollar: Trump or Biden. But in my opinion, the market estimates (for now) only the likelihood of a political crisis after the announcement of the preliminary election results. That is why the dollar index lost ground on Friday: following the televised debates, it became clear that Trump's loss was no longer so obvious. This means that the Republican team will fight for every vote, including in court, especially given the "coronavirus" remote voting (which has repeatedly succumbed to criticism from Trump). In other words, the absence of a clear winner in the election is a negative factor for the dollar,
Nevertheless, during the Asian session today, the dollar index slightly recovered its positions: if on Friday, the trading closed at 92.77, then on the first trading day the indicator went up to the borders of the 93rd figure. The growth is minimal, but the trend itself is important here, which indicates a weakening of pressure on the greenback.
The market switched to coronavirus again. Traders could not ignore the negative news flow from Europe, indicating an increase in the disease in almost all EU countries. For example, there's almost 20 thousand new cases of COVID-19 detected in Italy over the past day. The authorities of this country announced that in the near future they will announce further tightening of measures. In Germany, the anti-record was updated for the second time in a week: the number of confirmed cases increased by 15 thousand per day. Berlin is also preparing to significantly tighten quarantine restrictions. Earlier, the curfew was introduced in metropolitan areas and large cities in France, as well as in the Netherlands, the Czech Republic, in several regions of Greece and in some cities in Spain. In Poland, the President of the country Andrzej Duda became infected with the coronavirus.
In other words, the rate of spread of coronavirus in European countries is growing, even despite the restrictive measures being taken. The anti-rating leaders in terms of the number of new cases of COVID-19 are France, Spain, Italy and the Czech Republic. At the weekend, the situation only worsened, so the reaction of traders at the start of trading is predictable.
But in my opinion, the "coronavirus factor" will not be able to strengthen the position of the greenback, even if we consider the medium-term prospects. During the American session on Monday, the market will switch to political events in the US, especially since another deadline for negotiations on the fate of the new stimulus package expires today (spoiler: the parties with a 95% probability will not find a compromise again).
In general, the dollar is still a vulnerable currency, and even the coronavirus factor is no longer helping it dominate the market. The situation cannot be compared with the spring one (at least at the moment), since, firstly, the EU countries still do not dare to lockdown, and secondly, there is no shortage of dollar liquidity on the market (as was the case in March). Plus to everything - the pre-election period in the United States, which does not allow dollar bulls to fully show their character even when the fundamental background disposes to this.
All this suggests that investing in the dollar now is a risky business. Speaking directly about the euro-dollar pair, we can see that the price moved away from Friday's highs, but at the same time did not update the low of the last week. In other words, the pair is still trading in a flat, in the price range of 1.1815 up to 1.1875, in which it has been since last Wednesday. From current positions or when approaching the base of the 18th figure, you can enter longs with the first target of 1.1875. The next resistance level is located just above the 1.1900 mark.The material has been provided by InstaForex Company - www.instaforex.com