EURUSD forecast for 05.08.2020

August 5, 2020

EUR/USD forecast: will dollar come back into the game?Dmitri Demidenko

Fundamental U.S. dollar forecast for today

The second wave of the pandemic in Europe, a fresh fiscal stimulus

adopted by the Congress or trade wars. What will trigger the EUR/USD correction?

Based on the [EUR/USD][1] price chart, the positions of bears look weak. It seems that, following the sharp rally in June, the euro buyers should wait a little and take some profits, which would start a correction down. In fact, the correction turned out to be short and shallow, and the price drop to the bottom of figure 17 has immediately started a [new wave of purchases][2]. The difficult epidemiological situation in the USA associated with the uncertainty about the US economic recovery and the drop in the real Treasury yield make investors sell off the dollar. However, not all analysts are confident in the grim outlook of the US dollar.

Dynamics of the US dollar and Treasury real yield

![LiteForex: EURUSD forecast for 05.08.2020][3]

Source: Bloomberg

BofA Merrill Lynch warns that the market is too negative about the dollar, and the USD looks oversold. A bet against the dollar is a bet on the chance that the COVID-19 vaccination will start sooner rather than later. If it doesn’t happen shortly, Europe may face the second wave of the pandemic, which will make investors exit the [EUR/USD][1] longs, entered based on the idea of the divergence in the economic rebound of the euro-area and the USA. According to Westpac, the euro-dollar purchases resulted from the US poor management, as Congress has failed to reach an agreement on the extension of the financial aid package before the expiration of the former stimulus. Once the democrats and the republicans find a compromise, the dollar will gain back some of the losses.

In my opinion, the [EUR/USD][1] future price trend will depend on the US jobs report for July, and next, on the outcomes of the negotiations between Washington and Beijing. The idea of the US-China trade war is again acute. US and Chinese officials are going to hold a six-month review of the implementation of their Phase 1 trade deal during an August 15 video conference. In the meanwhile, the US-China trade relations are increasingly tense. China had pledged to boost purchases of US goods by some $200 billion, including a $77-billion increase in the imports of farm products in 2020-2021. However, the Chinese imports of the US products have been below the levels of 2017 so far. China is battered by the global coronavirus recession, the official Beijing asks the US not to surprise with daily political actions so that the Chinese government can work calmly.

Investors still remember how the greenback strengthen amid the US-China trade battles in 2018-2019. But it was about the currency of the winner at those times. Now, the trade conflict escalation could be seen as another failure of US management. When all the countries try to unite to manage the pandemic, the U.S. seems to be hindering the global economic recovery. Investors should also consider that, if China is unwilling to reach an agreement with the US, it will actively diversify its foreign exchange reserves, so the U.S. dollar will be weighed on.

Dynamics and structure of foreign exchange reserves

![LiteForex: EURUSD forecast for 05.08.2020][4]

Source: Financial Times

Therefore, the former growth drivers of the U.S. dollar are likely to fail. The euro, on the contrary, has many benefits to stand with a strong reading of the US jobs report for July. The [EUR/USD][1] bulls are looking forward to a correction to buy the euro cheaper. I recommend holding the [long positions opened at level 1.173][2] and expecting the publication of the US employment data.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: will dollar come back into the game?][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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