EUR/USD: Euro rally stopped; hopes for a rapid recovery in the global economy were not enough

By | May 22, 2020
InstaForex
EUR/USD: Euro rally stopped; hopes for a rapid recovery in the global economy were not enough
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The EUR/USD pair managed to rise above the level of 1.10 for the first time since the beginning of May. However, the attempt of the “bulls” to develop a further upward movement was unsuccessful. As a result, the main currency pair could not stay at the local maximum of 1.1008 and pulled back to 1.0900.

According to the head of the US Treasury, Steven Mnuchin, the US economy will become great once again in 2021. However, judging by the decline in the S&P 500 index, investors are still inclined to be guided by the principle of “trust, but verify.”

The number of applications for unemployment benefits in the United States, filed between May 10 and 16, amounted to 2.4 million. The indicator is gradually declining from its peak level of almost 7 million, recorded at the end of March. At the same time, the number of Americans receiving benefits for the week increased from 22.5 million to 25.1 million. Although business activity in the country has moved away from the bottom of April, it continues to remain depressed. This allows us to doubt the V-shaped recovery of the US economy.

Meanwhile, the situation in the eurozone does not look the best. According to IHS Markit, the composite PMI index of the currency block grew from 13.6 to 30.5 points in May. However, jobs in the region continue to decline rapidly, even despite the best efforts of national governments to maintain them. At the same time, fears associated with coronavirus will continue to suppress consumer activity in the Old World, and a decrease in demand is forcing employers to lay off employees. According to the Capital Economics’s forecast, Eurozone GDP may decline by 20% in the second quarter.

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The main factor supporting the single European currency this week is the news regarding negotiations within the EU to create a new fund to save the region’s economy. However, the impact of this event on the market is gradually weakening. Firstly, it is not yet clear whether the EU countries will be able to agree. Secondly, this fund is likely to begin to operate no earlier than 2021. It is obvious that the European economy needs more operational intervention and support, as evidenced by data published this week on economic activity in the EU as a whole and in individual countries in particular.

The weaknesses of the American and European economies hinder the growth of stock indices and stimulate the demand for defensive assets. The dollar is supported by increased tension in relations between Washington and Beijing, as well as the latter’s unwillingness to set a goal for the growth of national GDP in 2020.

For the first time in more than a quarter of a century, China decided to abandon the target. According to experts, this indicates a high level of uncertainty in the economy even after the end of strict quarantine. China’s cautious mood weakens the hope that after universal self-isolation, the country’s economy will evenly recover. This is bad news for the export-oriented economy of the eurozone and for the single European currency.

The chief economic adviser to US President Larry Kudlow, on the other hand, claims that the agreements reached at the end of January between the United States and China in the field of trade have not undergone any changes, but China must be punished for the pandemic.

In turn, the owner of the White House, Donald Trump, said that if the PRC introduces legislation restricting rights and freedoms in Hong Kong, the United States can respond harshly.

Apparently, without the COVID-19 vaccine, it is not worth counting on a rapid recovery of global GDP and the exit of EUR/USD beyond the medium-term consolidation range of 1.0650 – 1.1150.

InstaForex

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