EURUSD and GBPUSD: Franco-German agreement supports the euro. Pound ignores unemployment data

By | May 19, 2020
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EURUSD and GBPUSD: Franco-German agreement supports the euro

The European currency continued to strengthen its position against the US dollar after the news that Germany had eased its pressure and, apparently, once again abandoned its principles by proposing to France to create a fund for economic recovery in the eurozone, which will be included in the EU budget. The economies of Germany and France were least affected by the coronavirus pandemic but were forced to “save” the southern countries of the eurozone, which are experiencing major problems. I have mentioned in my previous reviews the reasons why the Nordic countries can make concessions and agree to create a stabilization fund.

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Without a sharp recovery in the economies of other countries, and now we are talking about neighboring countries, the German economy will also not receive the necessary momentum. The country is largely export-oriented, which will suffer primarily due to weak demand from southern countries. From this, we can conclude that countries such as Germany and France, especially in the current conditions, have no choice but to continue to finance debts and inflate the budget deficit of the eurozone member countries. Many experts believe that Germany and France have enough power to support neighboring countries that have suffered more severe damage from the coronavirus pandemic.

Investors took the Franco-German proposal with particular optimism, gradually returning to risky assets. However, the amount stipulated in the new fund, which is about 500 billion euros, is clearly not enough to quickly revive the economies of those countries that are most affected by the coronavirus pandemic.

Today, a series of leading reports came out, which further encouraged buyers of the euro. According to the ZEW Science Center, the index of economic expectations in Germany rose sharply in May this year, reaching 51.0 points from 28.2 points in April. No one had counted on such a sharp increase. At best, economists had expected the index to reach 32.0 points in May. Many predict a more active economic recovery after the removal of protective measures in the summer of this year. The index also reflects an improvement in sentiment in individual sectors of the economy. However, the indicator of current economic conditions in May collapsed even more and determined to -93.5 points from -91.5 points in April. Economists predicted that this indicator in May will be -89.0 points. Despite such an optimistic forecast,

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As for the eurozone indicator, the leading index of business sentiment from the ZEW institute was 46 points in May against 25.2 points in April, while economists had expected a slight increase to 27 points.

From the fundamental report today, you can also pay attention to the April data on the number of registrations of passenger cars in the EU, which fell sharply, due to an obvious reason that all the car dealerships did not work. According to the European Association of Automobile Manufacturers, in April, the number of new car registrations in the EU fell by 76%, to 270,682 units.

As for the technical picture of the EURUSD pair, a confident update of the level of 1.0980 and a rollback from it so far indicate only profit-taking by speculative players, while larger traders will probably expect a return to the levels of 1.1020 and 1.1140. A downward correction, which may begin today, will lead to an update of the minimum of 1.0860, where buyers of risky assets will try to build the lower border of a new rising channel, aimed at a larger growth of the euro.

GBPUSD

The British pound, on the other hand, did not significantly strengthen its position, and growth was stopped by weak data on the labor market. In April, the number of applications reached a historic maximum. According to the data, the increase in the number of applications for unemployment benefits in the UK achieved to 856,500, which outlines the beginning of the damage that the country will face as a result of the pandemic. According to the National Bureau of Statistics, more than 2.1 million people have lost their jobs since the beginning of the spread of coronavirus in the UK. However, this is not a complete statistic, since the government finances at its own expense partially those working people whose incomes decreased as a result of the pandemic.

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Do not forget about the decrease in the average earnings, which showed an increase of only 2.4% in March after an increase of 2.8% in February, while economists had expected an increase of 2.7%. Together with a reduction in the number of hours worked during the first months of the pandemic, a clearer overall picture can be obtained, but do not forget about the May indicators, which will turn out to be even worse.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

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