Relations between the US and China may worsen. Although it has not yet reached a real scandal, the United States continues to “inflate” the problems of COVID-19 distribution, placing full blame on China and blaming it for all the consequences that occurred after the outbreak of the pandemic.
During today’s interview, Donald Trump said that the United States could end relations with China because of the coronavirus situation. Trump also did not rule out a complete break in the relationship, which would save more than $ 500 billion. However, according to what estimates and how this could be achieved, Trump did not specify. When asked how the American leader represents further relations with Chinese leader Xi Jinping, Trump replied that he still treats Xi well, but now he does not want to call him.
Let me remind you that at the beginning of the week, US Senator Lindsey Graham made proposals for a bill on sanctions. We are talking about the draft law “on responsibility for COVID-19”, where it is proposed to introduce restrictive measures against the PRC if they do not provide a full report on the causes of the outbreak. The Senator said that the Chinese authorities are acting through deception to hide the real source of the outbreak, and are doing everything possible to prevent the international community from conducting an investigation in the laboratory in Wuhan. The bill sets a two-month deadline for the Communist party to provide a full report on the causes of the pandemic, as well as release all activists detained in Hong Kong after the outbreak of the pandemic, otherwise the sanctions may start with the denial of visas to Chinese students.
So far, there has been no official response from Beijing, but there have already been opinions from Chinese analysts who focus on at least four members of the US Congress and two American legal entities, which may be very seriously affected, as they will be included in the retaliatory sanctions list of Beijing. First of all, we are talking about those politicians who are trying the hardest to hold the PRC responsible for the global COVID-19 pandemic. Legal entities include Missouri Attorney Eric Schmitt. Also, a number of Chinese experts believe that if the United States does not cease to exert pressure on China and impose a number of sanctions, the response by the PRC will also not be symbolic.
In the meantime, the situation remains in limbo, and the market situation will depend on how the relationship will develop further. In the meantime, risk assets will continue to lose their positions against the US dollar, and this trend is likely to continue.
This morning’s reports on the state of the European economy did not strongly support the euro, although it was possible to cope with the pressure from major sellers.
According to the statistics agency, the unemployment rate in France in the 1st quarter of this year fell to 7.8% against 8.1% in the 4th quarter, while the unemployment rate for the 1st quarter was forecast at 8.6%. However, it is hardly worth paying special attention to this report, since already in the 2nd quarter, the indicators will significantly change for the worse due to the isolation measures that are still in effect, which may lead to a reduction in French GDP in the 2nd quarter of 2020 by 20%-25%.
Today’s report on consumer price growth in Germany in April surprised markets a little, as it turned out to be better than economists’ forecasts, even against the background of a sharp drop in oil prices. According to the Federal Bureau of Statistics Destatis, the final consumer price index of Germany in April 2020 increased by 0.4% compared to March but decreased by 0.9% compared to April last year. Economists had expected the index to grow by only 0.3% compared to the previous month and 0.8% compared to April last year. As for the EU-standardised CPI, it grew by 0.4% in April and by 0.8% compared to last year, which fully coincided with the forecasts of economists.
However, such indicators are unlikely to be good news for the market, since judging by expectations, already in the 2nd quarter of this year, the German economy may lose more than 14% compared to the 1st quarter. A sharp decline in personal consumption is the main reason for such a sharp decline in the economy. In just a year, German GDP may decline by 9%, and in 2020, it will grow by 4%.
Today, another quite interesting report from ING was published, which says that the bottom of the decline in economic activity in the Eurozone is behind us. But this is on the condition that there will not be a second outbreak of the pandemic, and governments will not be forced to return to quarantine measures. Even despite the fact that we are still waiting for terrible fundamental data for April and May, however, future indicators are likely to differ from the expectations of economists for the better, which will indicate that the worst is over.
As for the technical picture of the EURUSD pair, it remained unchanged compared to the morning forecast. The bulls have already managed to assert themselves in the support area of 1.0780 and are still seriously aimed at returning to the resistance of 1.0845. Closing the week above this level will lead to the formation of a fairly good formation with a real potential for updating the maximum of 1.0890 and going beyond it, which will open a direct road to the levels of 1.0980 and 1.1040.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.