EUR/USD to return to the rise line

EUR/USD has dropped sharply from above 1.20 to levels around 1.19 after the ECB commented on the exchange rate. There are reasons to worry about the European coronavirus situation and weak economics, but US struggles and the Fed's ultra-dovish moves may outweigh that and allow the pair to resume its rise, FXStreet’s analyst Yohay Elam reports.

Key quotes

“Philip Lane, the European Central Bank's Chief Economist, said that his institution is watching currency valuations. While Lane's comments are far from hinting at any policy measure – nor intervention – they served as one spark to bring down EUR/USD from its peak. The ECB may be worried by August's downbeat inflation figures. The CPI fell to negative territory on a yearly basis, while Core CPI tumbled to 0.4%.” 

“A hint toward the NFP is due out on Wednesday – ADP's private-sector jobs report. An increase of over one million positions is on the cards. It is essential to note that this publication has been off the mark in recent months. Models have apparently struggled to keep up with the rapid changes in the labor market brought on by the pandemic. Nevertheless, it is a substantial market mover.”

“The Fed remains close to the spotlight. Lauretta Mester, President of the Cleveland branch of the Federal Reserve, and John Williams, her colleague from New York, will speak later in the day. By reminding markets of the Fed's intention to keep rates low – estimated to run through 2025 by Goldman Sachs – the dollar could fall.” 

“COVID-19 cases continue rising in Europe while they are off the peak in the US. Investors are shrugging off these trends and focus on hopes for a vaccine. Anthony Fauci, America's top epidemiologist, said a vaccine could be approved before the end of the year if the results are overwhelmingly positive.”