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EURUSD forecast for 12.06.2020

June 12, 2020

June 12, 2020

Dollar wakes fears upDmitri Demidenko

Concerns about a second wave of the pandemic increase the demand for

safe havens

The worst drop in the US stock market since mid-march woke up Donald Trump. The US president says the Fed’s projections look too gloomy, “The Federal Reserve is wrong so often. I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021”. Earlier, Trump used to criticize the Fed for too high rates. Now, he is not satisfied with the central bank’s gloomy projections. He is irritated because of the S&P 500 drop and the surge of the fear index VIX to the level of 40.79, the highest for more than three months. It is not surprising! The repeated crash of the US stock indexes ahead of the presidential election looks like a defeat.

I think it is not fair to blame Jerome Powell and his colleagues for the stock market drop. One of the key drivers of the US stock market rally has been the Fed’s ample liquidity and the central bank is unwilling to change its policy. The Fed will hold the interest rates close to zero and buy $120 billion of Treasury and mortgage bonds a month. As for the idea of the Nike-shaped recovery of the US growth, the Fed is supported not only by the OECD but also by 69% of 62 experts surveyed by the Wall Street Journal. The analysts have somehow upgraded the forecasts for the US GDP (from -6.6% in May to -5.9% in June) and unemployment (9.6%, down from the previous gauge of 11.4%) in late 2020. 68.4% of economists believe the US economy will start recovering in the third quarter, 22.8% believe it has already started.

The market was too optimistic about the US economic rebound, however, the major reason for the S&P 500 sell-offs is the deterioration of the epidemiological situation. The number of COVID-19 cases in the USA has exceeded 2 million. The more actively states are reopening the faster is growing the daily infection rate. There are risks of the second wave of the pandemic and the fact that the US administration is not going to shut down the economy again. The US Treasury Secretary Steven Mnuchin says that shutting down the economy for a second time to combat the spread of COVID-19 could cause even more damage than the coronavirus. Therefore, the US stock indexes dropped down.

Dynamics of new COVID-19 cases in the USA and the S &P 500

![LiteForex: EURUSD forecast for 12.06.2020][1]

Source: Reuters

In early June, markets calmed down. However, the Fed’s grim forecasts and the concerns about the second wave of coronavirus have resulted in a new shock. Will the S&P 500 correction result in greater losses or stop soon? The answer to this question will determine the [EUR/USD][2] trend. The situation could deteriorate because of bad news form China and Europe. The US-China trade relations are tense, there still might be a new round of trade wars. Besides, the discussion on the French-German huge fiscal stimulus at the EU summit could weaken the euro, which now seems strong.

The euro could fall victim to its success. Almost a 6% rise of the [EUR/USD][2] has become a symbol that the fears of the coronavirus are easing all over the world. If those fears start rising again, the euro bulls will have to step back. I don’t see any reasons for panic, and the euro drop to $1.122-1.124 and $1.1125-1.1155 will give a good chance to enter long trades.

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Price chart of EURUSD in real time mode

![Dollar wakes fears up][5]

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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