By Peter Nurse
The dollar collapsed at the beginning of the european session on Friday, heading towards its month, the lowest in 10 years, then as traders worry that the u.s. economic recovery due to the continued spread of the virus Covid-19 in the Midwest and the failure of u.s. lawmakers to agree on a new round of stimulus measures.
Has 11: 35 am, the Dollar Index, which tracks the greenback against a basket of six other currencies, declined 0.4% to 92,648, after having reached 92,523, a new low level since two years.
The USD/JPY rose 0.4% to 104,36, its lowest level in 4 and a half months, and the GBP/USD rose 0.3% to 1,3135, its highest level in 4 and a half months.
The euro has been the head of the list, with an increase of 0.4% to 1,1898, or 5.8% this month, and is on track to record its strongest monthly advance since ten years.
“The weakness of the dollar is explained by the fact, pointed out the other day by the chairman of the Fed (Jerome) Powell, cases of coronavirus in the United States began to increase in mid-June, slowing consumption and pushing the economy,” said Daisuke Uno, strategist-in-chief of the bank Sumitomo Mitsui (NYSE:SMFG), according to Reuters.
Evidence of economic weakness has been provided by the GDP data for the second quarter, which showed that the u.s. economy has massively contracted 32.9% in annualized terms during the quarter.
These data may be old, but the initial applications for unemployment benefits increased 12,000 to reach 1,434 million in seasonally adjusted data in the week ending 25 July, a sign that the job market recovery is at a standstill.
During this time, the us president, Donald Trump has created more uncertainty regarding the upcoming presidential election, while the republicans and democrats do not seem to be any closer to a consensus on the latest stimulus measures, some previous measures are set to expire later Friday.
At the same time, the United States reported nearly 4.5 million cases of Covid-19, according to data from the Johns Hopkins University, while States like Florida and Arizona have reported a record increase in the number of new deaths for a third consecutive day on Thursday.
In regards to technical analysis, the dollar has the ability to decrease much more compared to the euro.
“The EUR/USD crossed a strong resistance to 1,1815/33, that is, a retracement of Fibonacci 61.8%, a line resistance of 12 years and the highest in September 2018. We are surprised that this has not held the initial test. The breakdown above is intended here 1,2635/66, the moving average of 200 months,” said Karen Jones, team leader FICC Technical Analysis Research at Commerzbank (DE:CBKG).