At a new high since 2018, the euro is in an upward trend against the dollar... but signs of overbought are observed.

The euro has the wind in its sails against the dollar. At 1.1946 against the greenback, the single currency (EUR/USD or euro/dollar) rose on Tuesday to a new two-year high, while conversely, the "dollar index" (the currency of the United States against a basket of other major currencies), symmetrically touched its lowest over the period. The postponement of discussions on the trade agreement between the United States and China (initially scheduled for last weekend) and the tightening of Donald Trump's sanctions imposed on Huawei have weighed on the dollar lately.

In addition, the uncertainties related to the health crisis (the United States is currently facing a second wave) and economic (the country should take years to digest the shock) are also weighing on the greenback. In particular, the disappointment on the New York Region Manufacturing Activity Index (Empire State Index), which rose less than expected in July (and less than in June). "This shows that the economic recovery in the United States is losing momentum and that the slow pace of budget negotiations seems to be weighing on the prospects of SMEs," said Ipek Ozkardeskaya, an analyst at Swissquote Bank.

What does the technical analysis say?

Driven by its moving averages at 30 sessions (which served as support at the beginning of the summer) and 20 sessions, the euro is following an upward trend (illustrated by an upward channel, in recent months) against the dollar, but signs of overbought are noticeable in weekly data. The single currency may soon have to regain its penny.

However, we are rather confident about the single currency in the medium term, especially since some long-term signals are in favor of the euro/dollar pair, as Daniel Cohen de Lara, president of the French Association of Technical Analysts (AFATE), recently indicated. The resistances of $1.20 and $1.2060-1.21, however, are expected to be major obstacles, which will have to be overcome in order to hope to record new annual highs.

A return of the euro to the support of 1.17 dollar would be an opportunity to bet upwards on the currency of the Monetary Union. On the downside, the euro would benefit from a major support towards 1.1490-1.15.