Logo

Posts

EURUSD forecast for 05.06.2020

June 5, 2020

June 5, 2020

Euro: all is fair in warDmitri Demidenko

The ECB actions sent the EUR/USD up to the highest level since early

March

It is better to regret something you do than to regret something that you don’t do. The ECB has given the market more than it expected, extending the Pandemic Emergency Purchase Program (PEPP) by €600 billion to €1,350 billion. It also extended the scheme’s duration until June 2021, or until the bank believes the crisis is over. The payments from securities purchased under the PEPP will be reinvested until at least the end of 2022. According to Christine Lagarde, the emergency QE allows the regulator to fulfill two tasks. It helps the euro-area economy rebound after the pandemic and is a foundation allowing to overcome the market crisis. The Italian bonds are again in demand. The yield on Italy’s 10-year government paper has dropped. The gap between the Italian and German bond yields has sharply narrowed, and the [ EUR/USD][1] has been up to its three-month highs.

Dynamics of the yield spread between German and Italian bonds

![LiteForex: EURUSD forecast for 05.06.2020][2]

Source: Financial Times

Lagarde says the ECB has unanimously agreed to boost its Pandemic Emergency Purchase Programme. However, the source of Financial Times familiar with the matter says that Jens Weidmann, the head of the Bundesbank, warns that, if this kind of QE lasts a long time, the ECB could be accused of illegal state financing. The ECB, implementing the PEPP, violates its own rule, as it buys more bonds of the countries most affected by COVID-19. All is fair in the war with the coronavirus, isn’t it?

Amid the ECB’s generosity, the euro has been rallying versus the US dollar for 11 consecutive days, which is the longest winning series since 2011, but the rise may stop soon. The matter is not in the EUR/USD overbought stated signaled by the RSI and the stochastic oscillator. Many euro’s advantages have been already used. The greenback is weakening and the S&P 500 is growing too fast amid the strong geopolitical tensions and the expectation of the slow recovery of the US economy. The ECB forecasts that the euro zone is facing an “unprecedented contraction.” **** The euro-area GDP should contract by 8.7% this year (if there is the second wave of the pandemic, it will drop by 12.6%), before rebounding to 5.2% growth in 2021. The Wall Street experts expect the US economy to contract by only 6.6% this year and to rebound by 5% in 2021.

ECB projections for euro-area GDP

![LiteForex: EURUSD forecast for 05.06.2020][3]

Source: Bloomberg

The fiscal and monetary stimulus has been already priced in the [EUR/USD][1], and there now may start a correction down if traders follow the principle “buy on rumors, sell on facts”. ABN Amro, JP Morgan, Banque Pictet & Cie, and Nordea suggest the ECB should boost the QE in the September-December period due to the growth of the government debt that should be compensated. However, I am afraid that it will be a bear factor, rather than a bull one, for the euro by that time.

Furthermore, the US stock market may turn bearish at any moment, as the US-China trade relations do not improve, and the growth of the US unemployment rate to 20% may increase the concerns about a slow recovery of the US economy. Therefore, The US weak jobs report for May can send the S&P 500 down, and there might be relevant to enter the [EUR/USD][1] short-term sell trades towards 1.1315 and 1.128.

P.S. Did you like my article? Share it in social networks: it will be the best “thank you” :)

Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

  • I recommend trying to trade with a reliable broker [here][4]. The system allows you to trade by yourself or copy successful traders from all across the globe.
  • Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][5] your trading account.
  • Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of EURUSD in real time mode

![Euro: all is fair in war][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.

Rate this article:

{{value}}

( {{count}} {{title}} )

  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/eurusd/spread-bonds-05-06-20.jpg?w=30&s=4a8202518752d21198b2981194979bfd
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/forecast-ecb-gdp-05-06-20.jpg?w=30&s=788e8887ec2f93e677adb3a1d495d1e7
  4. my.liteforex.com/?category=analysts-opinions&slug=euro-all-is-fair-in-war&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  5. my.liteforex.com/deposit/?category=analysts-opinions&slug=euro-all-is-fair-in-war&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus
  6. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-05-06-20.jpg?q=75&w=1000&s=ca05e7b5f79746eea6824d10f05ae5cb