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Euro enjoys the calm! EUR / USD ship needs fresh wind


Markets are like the sea, where calm comes after a storm. After an impressive roller coaster in February-March, the EUR / USD pair sways along the waves, the amplitude of which is becoming less and less. “Bulls” are not able to break through above 1.09, “bears” for the second time in the last few days unsuccessfully storm support at 1.07-1.0775. Obviously, the pair needs a fresh wind, able to bring it outside the trading range, but so far there is no new driver. 





The euro is supported by the growth of the slowdown in the number of applications for unemployment benefits of US stock indexes and an increase in Chinese industrial production by 3.9% y / y in April. At the same time, retail sales and investments in the Celestial Empire continue to decline, and Donald Trump, like a naughty child, does not want to date Xi Jinping. The White House owner talks about a complete breakdown in relations with Beijing, noting that if this happens, Washington can save $ 500 billion. An escalation of the US-China conflict is not excluded, and we all remember how much negative the trade war brought to the euro-zone export-oriented economy 2018-2019. 


The dynamics of Chinese industrial production and retail sales


Source: Bloomberg.


The euro is preparing to release data on German GDP, and while Germany is crying that € 81.5 billion in tax revenue is not being calculated, the rest of the eurozone countries jealously look at Berlin and criticize him for not wanting to spend money. The government of Angela Merkel could receive resources practically for nothing, but did not. As a result, the ratio of government debt to GDP in Germany is significantly better than in other countries of the currency block, and its economy in the first quarter, according to forecasts by Bloomberg experts, will decrease by only 2.2% qoq. For comparison, Eurozone GDP is 3.8% qoq. Inequality creates an occasion for envy and discontent, and here the German Constitutional Court demands clarification from the assisting Syrians and the wretched ECB. The fish rots from the head, so I personally will not be surprised if the collapse of the currency block begins in Berlin. 


The dynamics of public debt to GDP in eurozone countries

Source: Bloomberg.

The positions of the euro look shaky, and if the US stock indices and not the factors of long-term greenback weakness clinging to any little good news, the EUR / USD pair would have long gone below 1.077-1.0775. Alas, the colossal state debt of the States and the growth of the Fed balance to $ 9.63 trillion by December 2021 and to $ 11.27 trillion by December 2020, according to the forecast of the Wall Street Journal experts, do not allow investors to relax. They are acutely concerned about the question of when it will be necessary to sell the dollar. 

It is curious that the median estimate of Bloomberg experts on EUR / USD at the end of 2020 is 1.12. Yes, it fell from 1.15 expected in January, but the bulls still believe in the recovery of the euro. In my opinion, the necessary conditions for this scenario are the absence of a trade war, the unity of the eurozone and the rapid growth of the global economy in the second half of the year. All this is possible, while the main currency pair enjoys the calm and can not leave the borders of the trading range 1,077-1,09.


LiteForex analytics by Dmitry Demidenko


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