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EURUSD forecast for 01.06.2020

June 1, 2020

June 1, 2020

Dollar is tinkering at the marginsDmitri Demidenko

The EUR/USD bears were not encouraged by the White House’s

retaliation to China for Hong Kong

Forex has been radically changed by the global recession! In a different situation, the talks about the expansion of the euro-area QE would result in the euro sell-offs. Under the current conditions, the [EUR/USD][1] has reached its two-month high also because investors expect the ECB to take new measures to support the euro-area economy. If Christine Lagarde and her colleagues add to the quantitative easing at least €500 billion, Italy’s bonds may perform the best four-week rally since 2003. The drop in the Italian bond yields will signal that the euro-area debt market is calming down.

Dynamics of Italy’s bond yields

![LiteForex: EURUSD forecast for 01.06.2020][2]

Source: Bloomberg

The ECB meeting is the key event at the beginning of summer. The members of the Governing Council talked a lot about the necessity if the QE boosting in May, and the market has been almost convinced that the ECB would drive the QE size to €1.6 trillion. According to Christine Lagarde, the previous forecast suggesting the euro-area GDP drop by 5% in 2020, has been out of date by now. The euro-area economy can slip by 8%-12% down. A worse economic outlook, in addition to the inflation slowdown to 0.1% in the euro area, is a good reason to ease the monetary policy. Even Germany’s constitutional court can’t prevent the ECB from this. The ECB is accountable to the European Parliament and is guided by the decisions of the European Court of Justice, which recognized QE as a legitimate program.

Dynamics of euro-area inflation

![LiteForex: EURUSD forecast for 01.06.2020][3]

Source: Bloomberg

The stabilization of the European debt market is an important growth driver for the [EUR/USD][1]. A narrower gap between the Italian and German bond yields signals that the political risks are easing in the euro area and the EU is getting more united. For example, the euro surged after  Emmanuel Macron won a battle with Eurosceptic parties in 2017, so the unity among the EU members is crucial for the euro’s future.

Of course, the [EUR/USD][1] rally wouldn’t be so impressive but for the rally of the S&P 500, which encouraged investors to sell safe havens. The US economy may seem to be in a deep recession. Consumer spending fell 13.6% in April, following a 6.9% drop in March. Bloomberg experts predict the US non-farm payrolls should contract by another 8 million, after losing 20.5 million in April. US unemployment should increase to 19.5%, the highest level since the Great Depression. Nevertheless, Jerome Powell says he is less concerned than he was in late February and early March, the low base effect supports the hope for the V-shaped recovery of the US GDP in the second half of 2020. So, investors, who bought US shares in April and May, see that they were right and are willing to continue buying the US stocks.

Under the current conditions, the S&P 500 sell-off may start only if the news is really bad. The market expected bad news to result from the US huge sanctions against China, as it has approved the national security bill for Hong Kong. However, the White House hasn’t taken radical measures, which encourages the euro bulls. If the [EUR/USD][1] successfully tests the resistance at 1.115, it can well continue the rally towards 1.122 and 1.124.

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Price chart of EURUSD in real time mode

![Dollar is tinkering at the margins][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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