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EURUSD forecast for 20.05.2020

May 20, 2020

May 20, 2020

Dollar creates obstaclesDmitri Demidenko

EUR/USD bulls are going ahead, but there are no gains without losses

The risk of the euro-area breakup was reduced as Germany and France offered a €500-billion European recovery fund to support the EU countries worst affected by the pandemic. This news encouraged [EUR/USD][1] bulls. At the same time, the dispute between Democrats and Republicans in the USA about the terms and size of the fiscal stimulus may support ….the US dollar. The greenback and the euro react to the growing uncertainty in different ways. The dollar has benefits as a safe-haven asset. In this respect, different approaches of the Fed and the US administration to the US GDP recovery have set the [EUR/USD][1] buyers back.

Speaking before the US Senate Banking Committee, the Treasury Secretary Steven Mnuchin and the Federal Reserve Chair Jerome Powell offered contrasting views of the US economic prospects. According to Steven Mnuchin, the third quarter could be quite good, and the GDP can well follow a V-shaped rebound. Jerome Powell, by contrast, says the fear of the coronavirus will set the economic growth back. It will take a long time until the US GDP completely rebounds. The same opinion, by the way, is shared by the Congressional Budget Office, which expects the US GDP in the fourth quarter of 2020 will be 5.6% lower than a year ago.

Different views of the Treasury and the Fed are not a new driver. The US central bank has many times emphasized the necessity of an additional fiscal stimulus. Democrats are willing to provide a total package of $3 trillion. However, Donald Trump is yet rejecting this bill. The US President says that extra money given to the unemployed will discourage them from the search for new jobs, which will hold the US GDP recovery back. The US stock market is not confident in additional support, which strengthens the US dollar.

The uncertainty of the S&P 500 is likely to be the major factor weighing on the [EUR/USD][1]. The euro is stabilizing due to the offer by Angela Merkel and Emmanuel Macron, the growth of the German indicator of economic sentiment to its 5-year high, the ECB willingness to support the euro-area economy, and the lower risks of the US-China trade war escalation. As a result, the spread between the euro put and call premiums has narrowed to the minimum value since March 17, and the euro- dollar three-month risk reversals have entered the positive area.

Dynamic of German’s economic sentiment

![LiteForex: EURUSD forecast for 20.05.2020][2]

Source: Financial Times.

Dynamics of euro risk reversals

![LiteForex: EURUSD forecast for 20.05.2020][3]

Source: Bloomberg

According to the U.S. Department of Agriculture, in the 10 weeks ended May 7, gross sales of U.S. corn and pork to China were up by eight times, cotton exports were three times higher than they were in the same period in 2017 before the trade war started, soybeans exports increased by about 30%. China has significantly stepped up purchases of U.S. agriculture products to avert the trade war escalation. This is a positive factor for the export-led euro-area economy, and so, for the euro. The [EUR/USD][1] bulls are willing to continue the rally up to 1.1055-1.107. However, the euro has many problems, which are likely to create obstacles for the buyers.

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Price chart of EURUSD in real time mode

![Dollar creates obstacles][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/zew-germany-20-05-20.jpg?w=30&s=f1104e813f843f4bfe4f1018eaa8b0d9
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/euro-risk-reversal-20-05-20.jpg?w=30&s=68aeb7dd112e6f0286e4f8099fc4fb4f
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  6. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-20-05-20.jpg?q=75&w=1000&s=909bd43a5de00cb89be3d75b16fe74cc