The euro rally is short-lived. The pendulum of market sentiment will swing towards the dollar again

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 The dollar started the new week with a negative, there are several reasons for a pessimistic mood. The question is, which of them plays a primary role and how long will the downward movement last? In recent sessions, investors have shown concern about the impending recession in the United States. This topic affected the "strings" of the dollar, which began to lose ground after the release of unfavorable economic data published last week. There is an appetite for risk in the markets, which also does not benefit the US currency. Investors began to withdraw capital from a safe haven after the US president Joe Biden allowed the cancellation of tariffs of the US-China trade war. On Monday, at a press conference in Tokyo with the participation of Japanese Prime Minister Fumio Kishida, Biden confirmed the likelihood of a reduction in tariffs on Chinese goods. Against this background, the appetite for risk has increased. The revived euro is putting pressure on the dollar index, whose share in the basket of currencies that determines the dynamics of the index is 57.6%. European Central Bank President Christine Lagarde said that the central bank is likely to move away from negative interest rates. The first increase may occur in July. Additional support came from an unexpectedly encouraging IFO report in Germany. The business climate improved to 93 from 91.9, while expectations rose to 86.9, which is better than the forecast. The technical picture for the EUR/USD pair supports a continuation of the bullish momentum. After breaking through the 1.0600 mark, bulls aimed for a broader recovery of the euro. The quote may well move to the values of 1.0770-1.0790 in the short term. These levels will act as a kind of test and a serious barrier. If it cannot be overcome, the medium-term downward trend will reassert itself. Support levels are located at 1.0605, 1.0545, 1.0490. Resistance levels are at 1.0670, 1.0720, 1.0770.


The increasing demand for the single currency leads to an increase in the supply of dollars, which puts additional pressure on the greenback. The prospects for a deeper fall opened up before the dollar index. The indicator was trading near 102.07 on Monday, the lowest level since April 26. In the event of a breakdown down to 101.08, bears will first aim for the round level of 100.00. Further testing of the low on April 21 around 99.80 is not excluded.


However, according to analysts, it is unlikely that the market is now dealing with a trend change. The dollar will eventually resume its upward trend. The pendulum of sentiment should still swing in favor of the greenback, who will catch up in the coming days. The current movement in the dollar is considered as a correction within the framework of a long-term dollar rally. At the same time, the fall from the May peaks is deep and somewhat frightens market players.



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