USD: end of supremacy

USD: end of supremacy

2020-07-27 • Updated

Fundamental

The title may sound somewhat catastrophic, but we are looking into a better recovery in Europe than in the US.

That is primarily based on the virus spread in both: while we have an almost totally suppressed infection in the Old World, Covid-19 is still raging west of Atlantic. That means, while Europe is already one month into a healthy restoration of the pre-virus capacities, the US is going to take another month or more until it gets back into position. But no one is going to wait for that – the EUR will take over what used to be exclusively the USD’s space. In the mid-term, at least.

Will that change the game in the long term? Probably not. But there are definitely more problems coming at the USD in comparison to the EUR. The latter mainly has Brexit, so if the virus doesn’t come back, there are purely economic concerns of general recovery and the fishery dispute with the UK that the EUR needs to overcome. The former, on the other hand, has social turbulence resulting from state-wide health issues related to the virus. So until it gets to the point that the US says “ok, now, let’s start producing and buying again” it will take more time and effort from the public and the state.

Global investors are definitely tired of such a layout. But they are probably more tired to see that the USD keeps declining while it is supposed to stay firm as a safe-haven. Logically, they may change their preferences in favor of the EUR knowing that it has a brighter outlook for the coming months. That’s why, fundamentally, there is a big likelihood that the primary safe-haven in the mid-term will be EUR instead of the USD.

Technical

EUR/USD broke the 2-year downward trend and went for higher grounds after the virus passed its peak in Europe. Moreover, it went above 1.15 which used to guard the upside since 2015-2017 and was the upper border of the sideways channel back then. Currently, 1.2000 is the closest bullish range, and quite likely, it will be reached in the nearest future, even after all technical downward retraces. The 6-year high of 1.25 will be there to announce that EUR has strategically moved to occupy the grounds of the primary safe-haven currency. Hence, watch EUR/USD and take into account these tectonic shifts.

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