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EURUSD forecast for 10.06.2020

June 10, 2020

June 10, 2020

Dollar lets out dovesDmitri Demidenko

EUR/USD is up to three-month highs as Jerome Powell is expected to

sound dovish

The best is the enemy of good. The Fed is in a difficult situation after the publication of the US jobs report for May. The drop in the unemployment rate and the biggest surge in employment since the end of World War Two suggest the V-shaped recovery of the US economy, which is expected by the White House. The Fed was opposing this idea until recently. According to Jerome Powell, it will take a long time until the US GDP is back to the pre-crisis growth pace. This should require an extra fiscal stimulus. Strong domestic data allow the US central bank to sound more optimistic than it did before. However, optimism could drop the US stock market.

Powell has some negative experiences. In late 2018, his announcement that the current interest rates were far from being neutral started sell-offs of the S&P 500. The Fed’s chair must be extremely careful. Ahead of the publication of the FOMC June meeting’s outcomes, markets expect Powell to sound dovish. That is why the [EUR/USD][1] has rebounded up from the support at 1.124-1.1245 I [suggested earlier ][2]and increased by an entire figure. Investors expect the Fed to express the willingness to hold the interest rates low for some years and signal the Treasury yields targeting policy. Both factors are bearish for the US dollar, which is also weighed on by the seasonal factor. In June, the USD index fell in eight cases out of the past ten by 0.7% on average.

Dynamics of Bloomberg USD index

![LiteForex: EURUSD forecast for 10.06.2020][3]

Source: Bloomberg

The greenback has been ahead of the plan so far, as it has been more than 2% down since early June. However, investors are still willing to buy the [EUR/USD][1]. According to DoubleLine Capital, the US twin deficit (budget deficit and foreign trade deficit) should increase to 12% of GDP, and the dollar should be back to the levels of 2011. The euro is supported by the EU huge fiscal stimulus, which could mitigate the recession in the euro-area. Besides, amid aggressive rate cuts by global central banks, the ECB negative interest rates are not so harmful to the euro as they were before.

On the other hand, the rise in the Treasury yields and a lower chance that the Fed will cut the federal funds rate below zero are positive factors for the US dollar. These benefits of greenback can be neutralized if the Fed starts yield control policy, which should happen in September, according to Bloomberg. Investors can be lured back to the US dollar if there is COVID-19 second wave or a new round of trade wars. Unless this happens, the main scenario suggests the [EUR/USD][1] should rise to 1.147 and 1.155, and it will be relevant to buy the euro on the corrections down, as I wrote before. However, Jerome Powell’s carelessness and the fact that the euro-dollar rally ahead of the publication of the FOMC June meeting’s results implies the Fed’s dovish tone may become a reason for a drawdown.

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Price chart of EURUSD in real time mode

![Dollar lets out doves][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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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. www.liteforex.com/blog/analysts-opinions/the-dollar-gave-a-pleasant-surprise/
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/dollar-10-06-20.jpg?w=30&s=5cdf0cffcd33e9ceb5971b6202c79dc4
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  6. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-10-06-20.jpg?q=75&w=1000&s=7da0a438fe5fdc62c840bb69a977cc2e