Repetition is the mother of learning. The story of the EUR / USD take off to the top of the 8th figure in the European Forex session and the subsequent fall to its base in the American, which took place at the auction on May 12, as repeated after a day later. Caused by Jerome Powell’s speech and growing pessimism over the US V-shaped economic recovery, the S&P 500 has become real bucks for the dollar. Weighed down by internal problems, the euro cheerfully went down, and I am tormented by vague doubts that his fans will have the strength to repeat the hat trick for the third time in a row.
Coronavirus threatens to turn the fault line between the rich North and the poor South in the Old World into an economic chasm that seriously jeopardizes the regional currency. The failure of eurozone governments to agree on a fiscal stimulus, the specter of a constitutional crisis and the unresolved Brexit issue have raised uncertainty to historic highs and have made the euro the most vulnerable G10 currency since the peak of market shocks in mid-March.
The dynamics of European economic uncertainty
Currency Effectiveness G10
If the “bulls” in EUR / USD were supported by American stock indices before the beginning of the second decade of May, then their fall will allow the greenback to firmly take the initiative. The euphoria over large-scale $ 3 trillion fiscal and $ 2.9 trillion monetary incentives and the associated rapid recovery of the US economy is gradually subsiding. According to a Goldman Sachs survey, most executives of companies whose securities are included in the S&P 500 calculation base expect any, but not V-shaped trajectory of GDP. The consensus forecast of 64 experts from the Wall Street Journal suggests that the US economy will shrink by 6.6% in 2020 and will not be able to reach levels that occurred before the recession, at least until 2022.
According to US Treasury Secretary Steve Mnuchin, the second quarter will be “pretty bad,” but the next quarter will be better, and in 2021 the States will be able to return to a good economy. A similar opinion is shared by Jerome Powell. According to him, the restoration will be slower than we would like, and more incentives will be required from Congress not to put an end to those efforts that were previously made. Previous help to the economy is not the last page in the book. At the same time, the Fed chairman did not want to give a gift to Donald Trump, who was hinted at by the White House owner. Powell said the Fed has good monetary expansion tools, and negative rates are not what the FOMC is currently considering.
Understanding that the V-shaped recovery of the US economy is becoming a pipe dream, and the euphoria has brought the S&P 500 too high, forces buyers of American stocks to take profits. A fall in stock indices is pushing EUR / USD down, while a breakout of support at 1.077-1.0775 will increase the risks of continuing the pair’s southern hike in the direction of the lower border of the consolidation range 1.065-1.115, designated in mid-April.
LiteForex analytics and forecast
Articles → Dollar misses poker. Mutual increase in US and EU duties will cost the world economy
News → US dollar continues to decline for the third week in a row
News → The American currency received support from the publication of weak statistics from the eurozone
News → US Dollar Falls After Publication of Consumer Confidence
Articles → The ECB has cornered the euro. The central bank is not going to refuse negative rates