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EURUSD forecast for 07.05.2020

May 7, 2020

May 7, 2020

Euro feels dirtyDmitri Demidenko

ECB is doing its best to save the euro-area economy, but Germany

creates obstacles

How fast the Forex situation is changing! Just a week ago, the balance of power in the [EUR/USD][1] was clear. After the drop in the safe-haven demand amid the gradual reopening of the economies and the recovery of the global GDP, the euro should have started rising versus the US dollar. The dollar would be pressed down by the over-expanded Fed’s balance sheet and the U.S. increasing public debt. However, after there was announced the ruling of Germany’s constitutional court and geopolitical risks increased, everything has turned upside down.

Dynamics of ECB and Fed balance sheets

![LiteForex: EURUSD forecast for 07.05.2020][2]

Source: Wall Street Journal.

BofA Merill Lynch sees the [EUR/USD][1] at 1.02 in late 2020 amid weak global economic outlook and limited power of the ECB in managing the monetary stimulus. Société Générale notes that the dispute between the two European supreme courts during the pandemic results in the market uncertainty, which is a rather negative factor. Citi warns about higher risks of the euro-area breakup, coming from not the peripheral countries but the nucleus, as the ECB may ignore the ruling of the Constitutional court, challenging Germany’s government.

According to the Financial Times source familiar with the inside information, the Governing council won’t directly respond to the German court. One of the ECB council members said that it would justify the QE in five minutes, but the ECB didn’t have to do it. It looks as if the ECB should report to any court at the first request when it decides to hike the rates, for example. Another official said that the German government and parliament should be the defendants, and the Governing Council would continue doing everything necessary.

The decision of the German court looks ridiculous. What could justify bond purchases better than the assistance to the countries suffered from the pandemic? The ECB might blur the line between the monetary and the fiscal policies, but this is because the euro-area governments, first of all, Germany, wouldn’t spend money. The ECB is doing a hard job and is criticized at the same time.

The currency bloc may break up, and the situation is worsened by the EC forecasts. The European Commission says the euro-area GDP will contract by 7.7% in 2020, it should recover by just 6.3% in 2021. Italy’s public debt will increase from 135% to 159% of GDP, Greece’s debt will exceed 200% of GDP. However, German and the Netherlands will perform quite well.

Dynamics of public debts of GDP

![LiteForex: EURUSD forecast for 07.05.2020][3]

Source: Wall Street Journal.

The [EUR/USD][1] is also pressed down by Donald Trump. The U.S. President gave Beijing two weeks to make sure whether China would meet its commitments to increase U.S. goods purchases by $200 billion over two years, including $77 billion in 2020. Taking into account the problems of the Chinese economy amid the pandemic, and a decline in the imports from the U.S. in the January-March period, the U.S. could well impose new tariffs soon. The pair’s drop below the support at 1.077-1.0775 could become critical.

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Price chart of EURUSD in real time mode

![Euro feels dirty][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/eurusd/fed-reserve-ecb-07-05-20.jpg?w=30&s=c43fa67017790c2ed5ed3d07647c86e3
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/debt-euro-area-07-05-20.jpg?w=30&s=3df6dcd71638667b9cc23a2d3c49f351
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  6. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-07-05-20.jpg?q=75&w=1000&s=7447b0d41f2b97dee87b610fe7082cc3