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EURUSD forecast for 11.05.2020

May 11, 2020

May 11, 2020

Will the euro make a fortune at the expense of others?Dmitri Demidenko

EUR/USD is above 1.08 being supported by the US stocks

The [EUR/USD][1] response to the US jobs report represents the market sentiment. The U.S. stock market rally despite the US horrible domestic data weighs on the US dollar. However, as soon as the euro-area problem becomes acute, the EUR/USD is sliding down. The US unemployment rate rose to 14.7% and employment fell by 20.5 million in April. However, the S&P 500 bull trend didn’t break. The forecasts of the Wall Street Journal suggested a weaker report (16.1% and the loss of 22 million jobs). Many analysts believe that April is the worst month based on the loss of jobs amid the pandemic, and, if the worst time is over, it makes sense to buy the US stocks now.

The US stock market rally supported the growth of most G10 currencies versus the US dollar, but the euro has quickly weakened amid the euro- area problems. A split among the euro-area countries that has started after the governments failed to agree on the corona bonds and increased after the ruling of the German constitutional court is a strong point of the Euroskeptics, which increases the risk of the euro-area breakup. Italy is not like Greece or other small countries within the EU that used to cause trouble in the Eurozone earlier.

The size of the euro-area fiscal and monetary stimulus is much less than that in the USA, which suggests the European GDP will be recovering slower than the US economy, so the [EUR/USD][1] uptrend will hardly continue. Yes, the EU finance ministers manage to agree on emergency support of 2% of GDP for each stressed country in the week ended May 10. ESM will provide loans at a negative rate, which, taking into account the fees charged, will be about 0.1%. This means that Italy and the euro area, in general, received the support of about €36 billion and €240 billion, which is far less than the US fiscal stimulus of $3 trillion that could be boosted in late May or early June. The negotiations between the White House and Congress are going on, but the US Treasury Secretary Steven Mnuchin says the states that poorly managed the budgets before the pandemic should not be rescued by the federal government.

Remarkably, the derivatives market doesn’t suggest the [EUR/USD][1] will break through the low at 1.063 hit in March. Options traders see that the euro is supported by the US stocks and the factors of the dollar weakness in the long-term prospect, including the excessive growth of the Fed’s balance sheet and the increase in the US budget deficit.

Volumes of option contracts

![LiteForex: EURUSD forecast for 11.05.2020][2]

Source: Bloomberg

In the meanwhile, the European court has retaliated to the German judges that declared its decision on the legacy of the ECB QE is invalid. The EU court noted that its task is to ensure that the EU legislation is properly applied in all the 27 countries within the currency bloc. It alone has the jurisdiction to determine the legacy of acts taken by the EU institutions. On the one hand, this gave the ECB freedom to act, on the other hand, it encourages the Euroskeptics. The [EUR/USD][1] bulls are not strong but they still believe the S&P 500 should allow them to hold the pair above 1.08.

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Price chart of EURUSD in real time mode

![Will the euro make a fortune at the expense of others?][5]

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
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  5. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-11-05-20.jpg?q=75&w=1000&s=5eaf18417e8bb23bafb19df74f51ef60