On Tuesday, after breaking through the 61.8% Fibonacci retracement level of the downward trend from last December at 1.0935, the euro continued to rise on Wednesday, reaching close to this year's high at 1.1046. This movement brought the euro to test the 78.6% retracement level of the downward trend at 1.1025, a position near last December's high of 1.1140, potentially indicating a more bullish outlook for the euro.
Chris Turner, Head of Research for the UK and CEE at ING, stated: "As the outlook for US and global interest rates aligns towards lower levels, it has supported the euro against the dollar."
In a client report on Thursday, Turner noted: "We believe there is support for EUR/USD in the 1.0985-1.1000 range, and weak US economic activity data might push the euro up to 1.11."
Turner and his team also mentioned in their August forecast that the euro could potentially reach 1.12 in the coming weeks before falling back by the end of the third quarter. They believe that the recent dovish adjustments in Fed rate expectations and the narrowing yield advantage of the dollar over the euro are the main driving factors for the euro's recovery.
Furthermore, since the outbreak of the pandemic, the negative correlation between EUR/USD and the eurozone inflation cycle further suggests that the euro may have more upward potential. The European Central Bank's expectations of continued deflation in the coming months also support this view.
As of 9:53 AM Beijing time on August 16, the euro was quoted at 1.0979/80 against the dollar.
