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EURUSD forecast for 27.05.2020

May 27, 2020

May 27, 2020

Euro discourages bearsDmitri Demidenko

The euro doesn’t look that weak anymore

About twenty years ago, my schoolmate invited me to his office in the center of the city, showed me his desktop with expensive technical analysis software, and proudly said that it was relevant to sell as all the indicators pointed down. That guy was a loser in trading and had to earn his million in another business. When there are too many bears in the markets, wise traders start looking for buy entries. The [EUR/USD][1] rally in early may have proved this general truth.

The pandemic delivered another blow to the euro-area economy that had been already weakened by the US-China trade war. According to the OECD the GDP of 37 members of the organization decreased by 1.8% Q-o-Q in the first quarter, which was the worst drop since the beginning of 2009. Among G-7 countries, the weakest economies were France and Italy, the strongest ones – Japan and the USA. The share of the euro-area economy in the global GDP was decreasing since 1980, and, when the EU was hit by COVID-19, there was a disaster.

Dynamics of GDP of France, USA, and OECD

![LiteForex: EURUSD forecast for 27.05.2020][2]

Source: Wall Street Journal

The structure and the changes in the global GDP and industrial production

![LiteForex: EURUSD forecast for 27.05.2020][3]

Source: Financial Times.

Everything is relative. The Fed, the White House, and the Congress spared no expense to support the US economy. The dispute among the EU governments and the ruling of German’s constitutional court to ban further participation of the Bundesbank in QE if the ECB does not explain why the benefits of the program outweigh its side effects encouraged investors to sell the [EUR/USD][1].

While the EU was failing to find a compromise, there were high expectations that Christine Lagarde and her colleagues would stabilize the euro-area bond market. According to the ECB forecasts, the public debt in the euro area should increase from 86% to more than 100%, in Greece – to 200%, in Italy – to 160%, in Portugal – to 130%, in France and Spain – to 120% of GDP. If the ECB stops buying out bonds, the capital escape will dramatically increase the risk of the euro-area breakup. The Citi FX pain index for the euro has dropped to the lowest level since late 2018, which signals that traders are bearish on the euro.

Dynamics of Forex pain index

![LiteForex: EURUSD forecast for 27.05.2020][4]

Source: Bloomberg

The euro was saved by the rally of the US stock indexes, as investors were encouraged by the soon reopening of the US economy. The S&P 500 still supports the [EUR/USD][1]. Traders are exiting the euro shorts amid the French-German €500-billion project and the ECB willingness to boost the QE pace, despite the ruling of the German court (it is likely to be settled down by the Bundesbank and the German government). The single European currency doesn’t look that weak as it used to do. If there is not a new round of the US-China trade war, the Chinese, US, and global economies quickly rebound, which will support the rally of the US stock indexes, the [EUR/USD][1] should go up from the short-term consolidation range 1.077-1.099 and start rising to the top of the middle-term trading channel framed in the zone of 1.065-1.115.

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Price chart of EURUSD in real time mode

![Euro discourages bears][7]

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/france-usa-oecd-27-05-20.jpg?w=30&s=d1dc1d74ab7368cbbbb6fe6dc70a843f
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/gdp-manufacturing-27-05-20.jpg?w=30&s=eb90e08ec8bbd860ffba887c4d6f63ba
  4. cdn.liteforex.com/cache/uploads/blog_post/eurusd/citi-fx-euro-27-05-20.jpg?w=30&s=bac6274a1499841a1aa61401e2728f3a
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  7. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-27-05-20.jpg?q=75&w=1000&s=c73de1067c716cf20b9b00d95a82b8fc