At a new high since 2018, the euro is in an uptrend against the dollar... but there are signs of overbought conditions.

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 to a new two-year high on Tuesday, while conversely, the "dollar index" (the US currency against a basket of other major currencies), symmetrically hit its lowest level over the period. The postponement of the US-China trade deal talks (originally scheduled for last weekend) and Donald Trump's tightening of sanctions on Huawei have weighed on the dollar lately.

Moreover, uncertainties related to the health crisis (the US 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 manufacturing activity index of the New York area (Empire State index), which has grown less than expected in July (and less than in June). "This shows that the economic recovery in the U.S. is losing momentum and that the slow pace of budget negotiations seems to be weighing on the outlook for SMEs," judges Ipek Ozkardeskaya, an analyst at Swissquote Bank.

What does the technical analysis say?

Buoyed by its 30-session (which acted as a support earlier this summer) and 20-session moving averages, the euro has been trending upwards (illustrated by an ascending channel, in recent months) against the dollar, but signs of overbought conditions are discernible in weekly data. The single currency may thus soon have to resume its upward trend.

For all that, 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. However, the resistance levels of $1.20 and $1.2060-1.21 look like major obstacles that will have to be overcome if the euro is to make new annual highs.

A return of the euro to the $1.17 support level would be an opportunity to bet higher on the currency of the monetary union. On the downside, the euro would benefit from major support around 1.1490-1.15.