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EURUSD forecast for 28.05.2020

May 28, 2020

May 28, 2020

Euro took a wise decisionDmitri Demidenko

The euro area will receive financial aid

How to make so that both the wolves have eaten much and the sheep have not been touched? You should feed the predators before they reach their prey! The European Commission took a wise decision to issue bonds worth €750 billion with the maturity of 30 years. Before the Netherlands, Austria, Denmark, and Sweden moved to bloc the French-German plan, the EU had actually adopted it. €500 billion in grants will be distributed among the EU members suffered from the pandemic, €250 billion will be given in loans, as rich countries wanted. Besides, the EU has adopted a budget of €1.1 trillion over seven years, and the euro-area QE is expected to boost. Therefore, the risk that the bloc will blow apart has been lowered. Is it a reason to buy the euro?

According to the EC plan, Rome will receive €82 billion in emergency grants and up to €91 billion in low-interest loans. This information has sent Italy’s bond yields down to the lowest level in almost two months. European bond markets are calming down, especially since other euro-area countries will also receive financial aid. Spain is in line for €77 billion in grants, France could get €39 billion in grants, and Greece - €32 billion.

EU grants

![LiteForex: EURUSD forecast for 28.05.2020][1]

Source: Bloomberg.

The fiscal stimulus will increase the debts, however, Christine Lagarde doesn’t express any concerns, saying the euro-area is not facing a new financial crisis. The EU members should respond to the fallout of the pandemic, and using debt is not only a recommendation but the right way. In addition, low loan rates make government spending manageable.

The ECB president notes that the previous forecast for the GDP drop by 5% is out of date. The euro-area economy is likely to contract by 8%-12% in 2020. Such a speech might signal an expansion of the QE at the Governing Council’s meeting in June. Remember, the ECB responded to the pandemic earlier by increasing the QE size by €750 billion, which should be spent by October if the current pace of the asset purchases is kept.

Dynamics of euro-area GDP

![LiteForex: EURUSD forecast for 28.05.2020][2]

Source: Bloomberg

The unity and generosity of the EU sent the [EUR/USD ][3]up to the highest level since early April. However, the euro is about to roll down without the support of the US stock indexes. According to the median gauge of 50 analysts polled by Reuters, the S&P 500 will be at 2950 at the end of 2020, which is close to the current levels. Most experts believe that the US stock market will hardly roll down to the March lows amid the huge stimuli. But nevertheless, the uncertainty will hold the bulls back. Nobody knows what will happen after the pandemic. In addition, there are risks of the US-China trade war escalation, the second wave of COVID-19, and a worse political environment in the US amid the upcoming presidential election. These factors will press the S&P 500 down.

In my opinion, the lower risk of the euro-area breakup is a strong driver for the [EUR/USD][3] rally towards 1.115-1.12. However, it is essential that the US stock market should continue growing, or, at least, be stable.

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Price chart of EURUSD in real time mode

![Euro took a wise decision][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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