The greenback is attempting to stage a recovery on Tuesday, but after the Asian demand, momentum has faltered. The current widespread strengthening doesn’t look convincing and will likely attract a new wave of selloff in the short term.
The potential US government shutdown this Friday is in favor of such developments. The risk of a shutdown has increased recently, after Republicans supposed they won’t be able to pass the spending bill by the deadline (on Friday). Democrats refuse to support a deal that does not protect young illegal immigrants. These disagreements may yet make the UD dollar nervous, though the authorities will likely avoid the shutdown at the last minute.
As for EURUSD, despite the local retreat, the bullish trend remains intact and the upside risks persist as long as the currency pair is trading above the 1.2030 area. Doubts over the German coalition deal have undermined the recent euro’s rally, but the correction is rather another buying opportunity than a bearish signal. EURUSD may resume its ascent on Wednesday, if the euro area inflation data point to consumer prices growth. In this scenario, the initial upside target is 1.2270. The break above this level will introduce scope for the 1.23 threshold.
By Helen Rush
Senior Analyst at Capital Markets