Euro/Dollar: The results of last week and the forecast for the upcoming period.
Intraday volatility of the euro increased last week, but as a result, the quotes decreased against the dollar by only 40 points and reached the level of 1.1770.
The first meeting of the governing council of the European Central Bank after the revision of the strategy did not bring any surprises and did not become an event for the foreign exchange market. The new strategy is more focused on the duration of the stimulus policy, rather than on the amount of support. The euro exchange rate stabilized fairly quickly after the meeting and lost quite a bit. Further pressure on the single currency will continue, but it will be mainly related to real interest rates in the US, global inflation and movements between assets in the world, rather than to the monetary policy of the ECB.
The US dollar closed the second week of growth in a row, with the market's attention now focused on the Fed meeting in the coming week. The dollar index, which measures the exchange rate against a basket of comparable currencies, rose 0.2% over the week, rising slightly on Friday to 92.926. Business activity in the Eurozone grew at the fastest monthly pace in more than two decades in July, as the easing of restrictions gave a boost to the development of the services sector. The IHS Markit purchasing Managers ' Index, which is considered a good indicator of economic health, rose to 60.6 points in July, the highest value since July 2000.
Analysts still expect the greatest growth potential of the dollar at the end of the year, which reflects the forecast for the pair at the end of 2021 at the level of 1.1500. At the same time, experts from TD Securities bank say that in the near future, the quotes may rise to the resistance of 1.1850. The next focus of the market is on the two-day Fed meeting, which will end on Wednesday. Since the previous meeting on June 16, when Fed officials refused to mention the coronavirus as a problem for the economy, the number of cases of the disease has increased sharply. Many economists, however, still expect that the meeting will lead to some progress in discussions on reducing incentives, and this will cause a further strengthening of the US currency.
In our forecast, we expect a decline in the Euro/Dollar exchange rate to the support levels of 1.1750, 1.1725, 1.1700, 1.1670 and 1.1650.