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EURUSD forecast for 03.06.2020

June 3, 2020

June 3, 2020

Euro is looking at the marketsDmitri Demidenko

European economies

What came first, the chicken or the egg? Do markets reflect what is going to be in the economy, or the economy is driving the markets in a particular direction? When I look at the S&P 500, I see a soon V-shaped rebound. This is what the markets signal, although the Fed’s officials, the members of the Congressional Budget Office, and numerous experts say that the US GDP recovery will take a long time. When I look at the GBP, I see at least the extension of the Brexit deadline or even a soon signing of the trade deal between the UK and the EU. Although Boris Johnson’s government is unwilling to follow either of the scenarios.

Yes, euro gains back its old benefit, the hope that the Brexit matters will be settled down easily. The divorce, in any sense, is not an easy matter. Divorce is associated with significant financial costs in exchange for independence and peace of mind. The divorce of the UK and the EU is no exception. Both sides will suffer, and most of the negative was priced in the sterling’s quotes until recently. Once investors gained back the hope for the Brexit deal, they have started exiting the GBP/USD shorts. According to Bloomberg’s source familiar with the matter, the European Union will try to convince Boris Johnson to forge a compromise later this month in an attempt to stop the U.K. from breaking away from the bloc without a trade deal.

The stronger pound supports the euro. The euro-dollar risk reversals have entered the positive area for the first time since March, which signals the [EUR/USD][1] market is bullish.

Dynamics of EUR/USD risk reversals

![LiteForex: EURUSD forecast for 03.06.2020][2]

Source: Bloomberg

The euro’s rise is natural as the US stock indexes are rallying up although many controversial facts. There is a risk of the second wave of COVID-19, there are mass protests in the USA, the US-China trade relations are still tense. Moreover, the White House resumed the case of digital taxes in the EU in relation to US companies, which may result in new tariffs against the European Union. The growth of the global risk appetite has sent the USD down to its three-month low, and the sharks of Wall Street suggest that the greenback’s uptrend is about to turn down. According to Citigroup, as the Federal Reserve slashed interest rates to near zero and the potential growth of US GDP is lower than in the rest of the world, the dollar enters a bear market that should last from 5 to 10 years. A similar opinion is shared by Goldman Sachs, JP Morgan, and Deutsche Bank, which recommend their clients to reduce the share of the US dollar in the portfolios.

The euro is also supported by the talks that Germany is to boost the fiscal stimulus by €50 billion - €100 billion and the hopes that the ECB will expand the QE size by another €500 billion. I think these factors have been already priced in the[ EUR/USD][1]. If the ECB is not fast enough to take more stimulating measures or gives less than the market expects, the market can experience the same turmoil that was in March, when Christine Lagarde recklessly stated that the European Central Bank is not responsible for controlling the spreads of the debt market. The first targets for the euro longs at [$1.115][3] and [$1.12][4] have been already reached, the next upside targets at [$1.122 and $1.124][5] are close. The ECB meeting should allow taking some of the profits.

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Price chart of EURUSD in real time mode

![Euro is looking at the markets][8]

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/euro-risk-reversal-03-06-20.jpg?w=30&s=af70940a6e179b9aa2ba5efdacdab560
  3. www.liteforex.com/blog/analysts-opinions/euro-discourages-bears/
  4. www.liteforex.com/blog/analysts-opinions/euro-took-a-wise-decision/
  5. www.liteforex.com/blog/analysts-opinions/dollar-is-tinkering-at-the-margins/
  6. my.liteforex.com/?category=analysts-opinions&slug=euro-is-looking-at-the-markets&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  7. my.liteforex.com/deposit/?category=analysts-opinions&slug=euro-is-looking-at-the-markets&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus
  8. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-03-06-20.jpg?q=75&w=1000&s=d582303e2d63991ca2593c0981c71f2d