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EURUSD forecast for 02.06.2020

June 2, 2020

June 2, 2020

Euro: save Rome or dieDmitri Demidenko

ECB tries to prove that Italy’s central bank is strong enough to

support the economy during the pandemic

When the market is too optimistic, the good news is eagerly discussed and the bad news is ignored, I start thinking that it is the right time to exit. While Donald Trump is considering retaliatory measures to China because of Hong Kong, the S&P 500 is growing despite the deepest recession of the US economy since the Great Depression, the increase in the unemployment towards 20%, and the gloomy forecasts of the Congressional Budget Office. The CBO has lowered its GDP projection for 2030 made up in January by $15.7 trillion, suggesting the US economy should shrink by 5.6% in 2020, and the US economic recovery should take several years.

The S&P 500 is just one growth driver among several ones encouraging the [EUR/USD][1] bulls. During the stress in the financial markets, investors turned to safe havens, first of all, the greenback and Treasuries. However, once the global economies are being reopened, investors are lured back to risky assets. The USD index has been falling over the past few days, the 30-year Treasury yield reached its highest level since March 20. Nonetheless, the US-China trade relations are still uncertain. According to Bloomberg’s source familiar with the matter, China has told state-owned firms to halt purchases of farm products from the United States after Washington said it would eliminate special treatment for Hong Kong to punish Beijing. China may not meet the obligations under the phase 1 trade deal signed in January.

The euro is also growing amid the French-German fiscal stimulus offer, the announcement of the European Commission about issuing bonds worth €750 billion, and the hopes for the expansion of the ECB’s €750 billion Pandemic Emergency Purchase Programme. Investors expect that Italy’s bond yields continue falling, and the Italy-German yield gap will be narrowing, which should finally defeat the Eurosceptics. Christine Lagarde is going to save Rome, and Italy is often compared with Japan. The same aging of the population, the same endless struggle for inflation growth…Nevertheless, Japan has its central bank, and the ECB has to prove that Italy’s central bank is also strong.

Dynamics of debt-to-GDP ratio in Italy, Japan, and the USA

![LiteForex: EURUSD forecast for 02.06.2020][2]

Source: Bloomberg

In addition to the QE boosting, the ECB may also start purchasing fallen angels and reinvesting incomes from the long-term asset-purchase program.

The fiscal and monetary stimulus push the [EUR/USD][1] up and make banks revise their projections. HSBC sees the pair at 1.1 in late 2020, up from the previous forecast of 1.05, amid the drop in the risk of the euro-area breakup. Furthermore, the forecast of Bloomberg experts also suggests the EUR/USD be at 1.1.

Dynamics EUR/USD consensus forecast

![LiteForex: EURUSD forecast for 02.06.2020][3]

Source: Bloomberg

Nonetheless, the French-German plan hasn’t been approved yet, and the [EUR/USD][1] bulls could be set back as the ECB is not taking active measures right now. These facts, as well as the escalation of the US- China trade war, may force investors to start exiting longs. After all, the euro can still rise above $1.115.

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Price chart of EURUSD in real time mode

![Euro: save Rome or die][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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