The US Dollar lost value to the Euro during the month of June and traders may continue to suspect it will see more erosion in July.
The US Dollar has had a strong run against the Euro for a long duration. However, traders need to understand there have been times in the recent past when a comfortable range for the Single Currency against the USD was between 1.2500 and 1.3500. Pre-financial crisis problems of 2008, the USD seemed quite comfortable to trade even at weaker values versus the EUR.
However, the financial upheaval from twelve years ago created a sea change among central banks globally. The European Central Bank and US Federal Reserve reacted in different ways. It can be debated, but the perception among central bank followers is that the Federal Reserve was more aggressive than the ECB. Why this philosophical divergence took place can be debated into infinity, but it certainly helped that the US had a central government to rely on as opposed to the European Central Bank, which found itself fighting with its member nations to try and create a cohesive economic policy.
Why do I bring the above points up now? Because as we languish within the depths of unknown economic outlooks caused by the ongoing battle with coronavirus globally, we are again witnessing the same problems regarding central authority emerge and create hurdles. However, this doesn’t mean that the Federal Reserve’s recent policy is winning many long term friends. In fact, this time around critics are mounting and suggesting the Fed may be doing far too much as it becomes in essence a last ditch provider to large corporations in need.
How is the Federal Reserve doing this, it is buying corporate bonds and infusing cash into the stock markets with support by potentially buying ETFs and other assets which help create positive sentiment on Wall Street. The behavior from the Federal Reserve has helped preserve global risk appetite and this has created buying for the EUR/USD pair within a polite range which can be traded depending on trends and timeframe considerations.
The EUR/USD has traded within a range of about 1.1160 to 1.1350 for most of June. With its current price range current support the US Dollar appears to be around the 1.1180 mark, but this could prove more than vulnerable if risk appetite stumbles. Safe haven traders could find themselves searching for the US Dollar if equity markets tumble. However, the question asked with a mid-term perspective is, will the Federal Reserve let this happen? I am not being sarcastic when I ask this question. There is reason to believe the Fed’s policy of ‘too big to fail’ from 2008 has evolved into the extra role of ‘keeper of pension funds’, yes, now I am being sarcastic, but I am also pointing out the weakness of current market conditions. And how does this affect the US Dollar you ask?
Mid-term the USD may be able to maintain its rather prosperous tone and its value will remain the go to currency when problems arrive globally. International trade is still heavily reliant on the USD for transactions and commerce. However, if the Federal Reserve’s policy begins to falter and they cannot save equity indices should things go bad economically within the US and globally, then there will be a firestorm of volatility in forex markets as people begin to question the real value of the US Dollar long term compared to other major currencies.
The EUR/USD appears to be in a rather comfortable trading range right now. If investor sentiment were to suddenly turn sour in a major way, a wave of selling for the EUR/USD could occur. However it is likely that the month of July will continue to produce good days and semi-poor days on Wall Street, in which the good outweighs the bad. Therefore, the USD may maintain it recent weaker range against the EUR and speculators may continue to buy the EUR/USD currency pair with the hope resistance continues to get tested incrementally if risk appetite remains good internationally.
EUR/USD Outlook for July:
Speculative price range July: EUR/USD is 1.1050 to 1.1450
Support at 1.1100 looks relatively strong mid-term, but if brushed aside the EUR/USD could falter to 1.1050
Resistance at 1.1350 appears tough, but if proven vulnerable the EUR/USD could target the 1.1450 mark