One of the currency pairs that benefited the most from the weak dollar is the EURUSD. It rose relentlessly to almost 1.20, finding buyers on every single dip so far. The strong trend is fueled by a combination of good news out of Europe and extreme USD liquidity out of the United States.
September Starts the SURE Program in Europe
The European Commission will begin this coming month to borrow from international financial markets under its SURE program. This is a scheme designed to help members fight unemployment, and many European countries already applied for funds. For instance, Spain will receive over EUR21 billion and Italy over EUR27 billion.
After the SURE program, the European Commission will start borrowing for its Recovery Fund. Both the SURE and the Recovery Plan agreements were reached during the pandemic and the market views their execution as a strong commitment to the already agreed deal. Hence, the Euro trades with a bid tone on all pairs, but especially on the EURUSD pair.
USD Liquidity Reaching Unprecedented Levels
At the start of the crisis the Fed opened USD swap lines with the rest of the world. It still keeps them open, just in case the need for more USD arises again.
Moreover, the fiscal stimulus offered by the U.S. Congress caused the M2 money supply to reach extreme levels. Where is the first place to see that? Naturally, the currency market.
EURUSD Technical Picture
The EURUSD Elliott Waves technical picture points to a top in place, albeit it may be just a temporary one. The recent move lower from the 1.19 area looks like the start of an impulsive structure, with the first two ways already completed.
The second wave is particularly interesting – a horizontal correction with a large x-wave. To trade it, wait for the EURUSD to break below 1.1775 before going short with a 1.1860 stop loss and targeting 1.1600.