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The dollar is fixing obstacles! Bulls on EUR / USD are encouraged, but success is not without loss


While the Franco-German proposal to create a € 500 billion fund to support countries affected by the pandemic reduced the risk of a split in the eurozone and inspired the bulls on EUR / USD to attack, the split in the ranks of Democrats and Republicans in the US on the timing and scale fiscal stimulus can support ... the American dollar. Greenback and the euro react differently to rising uncertainty. The former receives preferences due to the status of an asylum asset. In this regard, the different approaches of the Fed and the White House to restore US GDP have somewhat cooled the ardor of buyers of the main currency pair EURUSD. 




Speaking to the Senate Banking Committee, the heads of the Ministry of Finance and the central bank offered conflicting views on economic prospects. According to Steve Mnuchin, the third quarter will be very good, GDP is quite capable of taking the path of a V-shaped recovery. Jerome Powell, by contrast, said that fear of coronavirus infection would inhibit economic activity. The return path of the gross domestic product to the trend will be a long one. The Congressional Budget Office, by the way, is of the same opinion, predicting that GDP in the fourth quarter of 2020 will be 5.6% less than a year earlier.

The different views of the Fed and the Treasury are not news. The Central Bank has repeatedly spoken about the need for an additional fiscal stimulus. Democrats are ready to provide it in the amount of $ 3 trillion, but Donald Trump has so far rejected the offer. According to the head of the White House, the extra money for the unemployed will hinder their search for new jobs and delay the process of GDP recovery. The stock market is not sure of additional support, which plays into the hands of the US dollar. 

The uncertainty of the S&P 500 is perhaps the main reason holding back the bulls on EUR / USD. The clouds above the head of the euro are beginning to disperse thanks to the proposal of Angela Merkel and Emmanuel Macron, the growth of investor sentiment regarding the economic prospects of Germany to a 5-year high, the ECB's readiness to continue to support the eurozone economy and reduce the risks of escalating the US-China trade conflict. As a result, the difference in the premiums for monthly put and call options in the single European currency fell to a minimum since March 17, and the 3-month reversal risks even turned into a positive area.


The dynamics of the mood of German investors

Source: Financial Times.


Euro reversal risk dynamics

Source: Bloomberg.

According to the U.S. Department of Agriculture, in the 10 weeks ending May 7, gross sales of US corn and pork to China grew 8 times, cotton exports were three times higher than in the same period in 2017 before the outbreak of the trade war, soybean shipments increased approximately by a third. Beijing is doing everything possible to avoid escalation of the conflict, which is good news for the export-oriented economy of the eurozone and for the euro. The Bulls on EUR / USD are seriously set to continue the rally in the direction of 1.1055-1.107, but let's not forget that the single European currency has plenty of problems that are likely to put buyers in the wheel of a stick.


EURUSD analytics and forecast today  Demidenko Dmitry LiteForex


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