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10:50
The dollar presented a pleasant surprise!

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A quick recovery in the labor market signals the shortest recession in US history


Recessions end when the economy begins to grow. Judging by the fastest monthly increase in employment in May (+ 2.5 million) since the end of World War II, the current recession will be the deepest and shortest since the 1930s. Contrary to the gloomy forecast of unemployment rising to 20%, in fact, the indicator fell from 14.7% to 13.3%, which allowed the US stock indices to jump 3%, and the bulls to EUR / USD to take profits. When everyone is buying, there is a great opportunity to sell. The implementation of this principle, optimism about the faster growth of US GDP compared to the global counterpart, and the increase in the yield of treasuries have left the US dollar a shoulder.

 

 

US unemployment and employment dynamics

  

Source: Bloomberg.


Obviously, the main driver of the 3-week euro rally was signs of European unity in the form of a significant expansion of fiscal and monetary incentives. According to the Bundesbank, which predicts German GDP growth of 3.2% and 3.8% in 2021–2022 after the economy sags 7.1% in 2020, tax cuts in Germany and other support measures will add a whole percentage point to gross domestic product. next year. At the same time, the almost 6% increase in EUR / USD since the third decade of May suggests that a significant part of the positive has already been taken into account in the quotes of the pair, and provides a basis for profit taking. The situation when many investors, inspired by a pleasant surprise from American employment, are buying, provides an excellent opportunity to do this. 


Will the wave of euro sales continue? The answer to this question will depend on Donald Trump and the Fed. The US President again threatens the EU with an increase in import duties on European cars. The White House, as in the case of China in 2018-2019, starts small. His head did not like the fact that Canadian lobsters are delivered to Europe without tariffs, and American ones with 8% duties. Do not make a difference - take on your automotive industry. By the way, the same thing applies to Beijing, which also obstructs lobsters from the US to Asia. The resumption of the trade war is the latest thing that the global economy needs, as, indeed, the Celestial Economy, as a bloodless pandemic. China begins to slowly but surely rise from its knees: in May, its foreign trade surplus rose to a record level of $ 62.9 billion. Good news for GDP. 

 

China's foreign trade dynamics

Source: Bloomberg.


Will the Fed drown the dollar? Large-scale US Treasury bonds (in the second quarter we will talk about $ 3 trillion, which is equivalent to 15% of GDP), improving the labor market and accelerating inflation allow investors to take a risk step and get rid of debt obligations. Treasury profitability growth will restrain economic recovery and increase the cost of debt servicing. In this situation, the Federal Reserve can use the Japanese and Australian bond rate targeting experience. This will deprive the greenback of an important trump card and will allow to form long EUR / USD positions on the rebound from supports at 1.124 and 1.12.

 

LiteForex analytics and forecast EURUSD  Demidenko Dmitry

 

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