The reluctance of the market to respond to bad news is good news in itself. It would seem that the number of COVID-19 infected per day in the United States rose to a record high, Senate sanctions against Chinese officials in response to Beijing’s restriction of rights and freedoms in Hong Kong, as well as disappointing statistics on unemployment benefits should have dropped the S&P 500 below 3,000 , and EUR / USD - at least to support at 1.117. Moreover, in April, international trade dipped by 12.1%, which was the largest decline since the start of accounting, and Reuters experts believe that the global economy has worsened. To the surprise of skeptics, US stocks rose, and the main currency pair managed to stay above the base of the 12th figure. The euro smoker is alive!
The second wave of the pandemic and the resumption of trade wars - these are the factors that can trigger a large-scale correction in the US stock market. And the S&P 500 at the auction on June 24 really reacted to approaching the number of detected infections to a historic high, but when it was rewritten, the stock index suddenly grew. In fact, you need to understand that COVID-19 is just a decoration, the reaction of the market to it depends entirely on the depth of subsidence of US GDP and the speed of its recovery. In this regard, the words of President Larry Kudlow, the chief economic adviser, that there will be no repeated lockdown, in the second half of the year the American economy can expand by 20%, and the unemployment rate will fall below 10% by the end of 2020, have produced a greater effect on the market than the unwillingness of the coronavirus to retreat.
The dynamics of the number of infected COVID-19 in the United States
Source: Financial Times.
The fact that the epidemiological situation in the United States remains tense indicates that it is still too early to get rid of the US dollar. According to JP Morgan, the greenback could seriously weaken if the global GDP by the end of the year is 2 pp higher than currently expected, or if the forecasts of the differential of economic growth in the USA and the rest of the world are 3 pp lower. Alas, the first assumption is still not working: 71 out of 90 Reuters experts believe that the prospects for global GDP recovery have worsened over the past month or, at best, have remained the same. On the other hand, leading indicators from Bloomberg show that economies are returning to the trend faster in the eurozone than in the United States.
The dynamics of economic recovery
Investors got stuck on the ECB's answer to the German Constitutional Court and overlooked an important moment in the minutes of the June meeting of the Governing Council: if Eurozone GDP presents a pleasant surprise, € 1.35 trillion of the emergency asset purchase program will not be spent. Explicit "hawkish" rhetoric, extremely unexpected at this stage of economic development.
In my opinion, relying on a rapid EUR / USD rally without improving the epidemiological situation in the United States is not worth it, however, a faster recovery of the eurozone and China compared to the United States allows you to maintain a “bullish” mood and buy a pair at a lower price to support 1.1155 and 1.112 .
Forex analytics Demidenko Dmitry LiteForex
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