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EURUSD forecast for 22.05.2020

May 22, 2020

May 22, 2020

Dollar likes another letterDmitri Demidenko

global economy

Can the US economy again become great in 2021, as Steven Mnuchin claims? Investors shouldn’t be concerned about this, rather, they should focus on the financial markets’ confidence and the words of the US Treasury Secretary. As the S&P 500 is falling, stock traders follow the principle “trust but verify”. Weekly jobless claims rose 2.4 million for the week ended May 16. The pace of the indicator growth is declining from its peak of about 7 million in late March. The total number of unemployed rose from 22.5 million to 25.1 million in a week. PMI has been up from April low, but it is still weak. The US economy will hardly follow a V-shaped rebound, there is likely to be another letter.

Dynamics of US jobless claims

![LiteForex: EURUSD forecast for 22.05.2020][1]

Source: Bloomberg

The domestic data in the euro-area are also weak. According to Markit, composite PMI has been up from 13.6 to 30.5 in May. However, the unemployment rate is growing at an unprecedented pace, despite all the efforts spent by the euro-area governments to support the labor market. The worst PMI drop was in April, however, the fear of the coronavirus still press the consumer activity down, and the lower demand forces the employers to fire the employees. It may take years to return to a pre- crisis level. Furthermore, Capital Economics expects the euro-area GDP to contract by 20% in the second quarter.

Dynamics of PMIs

![LiteForex: EURUSD forecast for 22.05.2020][2]

Source: Wall Street Journal

The weakness of the US and euro-area economies sets the stock indexes back and increases the demand for safe havens. The demand for the greenback is supported by the uncertainty around the US-China trade relations. Also, China is unwilling to set the GDP target for 2020. For the first time in more than 25 years, China has decided not to set the growth target, which signals that Beijing won’t expand the fiscal and monetary stimulus so that the economic growth pace could reach at least 5.5% Y-o-Y this year. According to the experts surveyed by the Wall Street Journal, such a pace is needed to double the Chinese GDP in the next 10 years.

A lack of extra stimulating measures in China is bad news for the export-led euro-area economy, which weighs on the euro. However, it is still much time before the end of 2020, and China’s position can still alter. US-China trade relations can also change. The White House’s top economic adviser Larry Kudlow has said the U.S.-China “Phase 1” trade deal reached in January is “intact” and doesn’t need to be renegotiated, but China must be punished for an inappropriate response to the coronavirus pandemic. Donald Trump warned that Washington would react “very strongly” against the attempt of China to impose new national security legislation on Hong Kong

I think one shouldn’t reduce the share of the US dollar in the investment portfolio and expect the [EUR/USD][3] to exit the middle-term trading range of 1.065-1.115 unless a  C OVID-19 vaccine is found and the global GDP quickly rebounds.

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Price chart of EURUSD in real time mode

![Dollar likes another letter][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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