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EURUSD forecast for 26.05.2020

May 26, 2020

May 26, 2020

All roads lead the euro to RomeDmitri Demidenko

EUR/USD will rally up if the EU adopts the offer made by Emmanuel

Macron and Angela Merkel

The ECB is willing to save Italy, but will the EU agree? According to the Bank of France Governor Francois Villeroy de Galhau, using the capital key, when the QE size is associated with the size of the economy, is not necessary for the emergency program. Germany, whose GDP should drop by 6.5% in 2020, is likely to receive the most benefits, while Italy’s, Spain’s and Greece’s GDPs will lose more than 9%. The European central bank is willing to not only boost the QE volume but also break its own rules, which is a positive factor for the euro. However, little depends on Frankfurt, the key decisions will be taken in Brussels.

The [EUR/USD][1] rise to 1.1 amid the news about the French-German plan for a €500-billion recovery fund is natural. European governments support unity. However, not all member-states support this idea. Austria, Sweden, Denmark, and the Netherlands stated their opposition to grants, calling for a loans-based approach instead. Only 32% of the investors polled by ExanteData believe that the EU will fully accept the proposal of Paris and Berlin. 38.2% of respondents suggest that the plan should be corrected. This is a bear factor for the euro, allowing selling the [EUR/USD][1] on the rise.

The major problem is in Italy, whose economy stopped expanding after the introduction of the single European currency, and the US stocks started to outperform the euro-area peers.

Dynamics of Italy’s GDP and the relation between the US and the EU stock indexes

![LiteForex: EURUSD forecast for 26.05.2020][2]

Source: Nordea Markets

Unless Rome receives enough support, it makes no sense to be an EU member. The risks of the euro-area breakup will press the [EUR/USD][1] down. However, the French-German plan could still be adopted at the EU summit, which will allow the euro to rise.

In the meanwhile, the euro-dollar trend mostly depends on the US stock indexes, as investors are weighing which is a more important factor, the reopening of the global economies or the escalation of the US-China trade war. According to the Netherlands Bureau of Economic Policy, international trade in March contracted by 1.4 M-o-M and 4.3 Y-o-Y, which is the worst drop since 2009. This is a negative factor for the export-led euro-area economy. However, the indicator should rebound in the May-June period, also because of the active fulfillment of China’s obligations to the US.

Dynamics of international trade

![LiteForex: EURUSD forecast for 26.05.2020][3]

Source: Bloomberg.

US-China trade relations seem to have aggravated. However, Donald Trump wants to be re-elected as the US President, so he needs to put pressure on China. Besides, the escalation of the situation forces China to stimulate its economy to increase the purchases of US goods. Since the pandemic started, PBoC has injected about 5.9 trillion yuan ($ 827.6 billion) in the economy, and it is willing to continue in the same way. This suggests a V-shaped rebound of China’s economy, which in the medium term will support the [EUR/USD][1], currently stuck in the trading range of 1.077-1.099.

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Price chart of EURUSD in real time mode

![All roads lead the euro to Rome][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/italy-stocks-26-05-20.jpg?w=30&s=12e7b9f7d9aacb71879b331f17084f63
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