EUR/USD: End-of-month adjustment to trigger a correction

EUR/USD has been surging above 1.19, the highest since June 2018. However, a correction may be on the cards, especially as money managers readjust their portfolio on the last day of the week and month, Yohay Elam, an analyst at FXStreet, reports.

Key quotes

“Despite various flareups, most notably in Spain and Belgium, Europe’s COVID-19 situation is mostly under control. The number of cases per 100,000 people is low or medium across the continent in the past 14 days, while it is over the top in the US – above 120.” 

“American lawmakers have reported progress on talks – but there is still no white smoke on agreeing to extend federal unemployment benefits – essential for keeping consumption afloat – as well as other measures. In the old continent, EU leaders agreed on the recovery fund – a move that is the main underlying upward driver of the euro.”

“Second-quarter GDP figures are better in the US than in major European countries – yet investors are focusing on the more recent trends rather than the period that ended a month ago. However, US initial jobless claims rose to 1.434 million in the week ending July 24, and more importantly – continuing applications jumped above 17 million in the previous week.” 

“An end-of-month adjustment may trigger a downside correction for EUR/USD, potentially driven by a bounce in US yields. The ten-year Treasury bond yield fell to the lowest since May, and a potential bounce could allow the dollar to recover.”