The Dollar Raises Its Head After The Fall
FxPro Financial Services Ltd | Jul 28, 2020 04:39AM ET
The weakening of the dollar on Monday made a threatening turn, triggering a wave of stop orders, exacerbating the situation. Very often, such sharp growth impulses are followed by reversals.
EUR/USD seems overbought
During the day, the pair's rate jumped by more than 1.2% to 1.1780, the highest level since September 2018. On Tuesday morning, however, the pair rolled back by 0.5% from yesterday's peaks, settling down around 1.1720.
On the daily charts, the RSI moved above 80 yesterday, reflecting the extremely overbought area. As a rule, such high values coincide with the peak of the surge, followed by either extensive correction or reversal.
All fundamental assumptions that have pulled the dollar down in the last few days remain in force. However, on the daily charts is easy to see that the pressure wave of weakening has gone too far. Further retracement of EUR/USD from the current level can cause it to return to the 1.1550 area.
On Tuesday morning, it seems that buyers of the American currency have returned. It is a relatively small move, but it managed to strengthen USD against a wide range of currencies, including so-called 'safe' JPY and CHF and 'risk-sensitive' GBP and AUD. The currency market is often the first to give trend reversal signals, and today may be one of them.
Gold hasn't reached above $2000
As the dollar antipode, gold rose yesterday to $1945. During the Asian session, the wave of stop-orders pushed the price above $1980 for a short time. However, without support from the currency market, this impulse has quickly exhausted. Gold soon returned to $1935, erasing all early gains.
Technical analysis suggests that the correction of the eight-week rally can cause a price drop to $1860 an ounce. If the dollar recovery turns out to be stable and stretches out for the next few days, you should look at the stock indices with caution. Firstly, dollar purchases may be fueled by a stock sale. Secondly, very often, the powerful growth waves of the American currency are accompanied by a suspicious sentiment in the markets.
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