EURUSD forecast for 06.07.2020

July 6, 2020

Hedge funds gave up on the dollarDmitri Demidenko

Fundamental US dollar forecast for today

The US jobs report gave a good chance to exit EUR/USD shorts

Crisis results in many paradoxes. In the April-May period, the US domestic data were getting worse, but the US stock indexes were growing. In June, the US Economic Surprise index reached its all-time high, its peer for the world’s largest countries reached the highest level since 2017. However, the number of coronavirus cases in the US and globally continues increasing. The first puzzle has been solved, the stock market usually recovers sooner than the GDP. The second one is yet to be solved. The right answers are very important. They determine the future trends of many financial assets, including the [EUR/USD.][1]

Dynamics of Economic Surprise index and the number of confirmed

coronavirus cases

![LiteForex: EURUSD forecast for 06.07.2020][2]

Source: Bloomberg.

Frankly speaking, the market’s response to the US jobs report puzzled me. The strong report has naturally pushed the S&P 500 up, but the US dollar has risen too. The strengthening of safe havens contradicted to the growth of the global risk appetite. Only the drop of the stock index at the end of the trade session has clarified the situation somehow. Investors worry that the economic data will be getting worse amid the increase in the coronavirus cases and the risk of another lockdown.

Nonetheless, the greenback’s strengthening contradicts to the dollar smile theory. At the final, third stage, the USD should be rising due to the US GDP that should be rising faster than the global growth. But things are different. China and the euro area are likely to recover sooner than the US economy. The epidemiological situation in Europe and Asia is better than in the USA. Beijing has taken unprecedented measures to defeat COVID-19, the success of euro-area medical services, and the size of the stimulus are impressive.

Therefore, the greenback rise amid a strong reading of the US employment data is likely to be temporary. There also could have been a trap organized by large traders. I noted that the correlation between the S&P 500 and the [EUR/USD][1] weakened in late June, but I associated this with the positions rebalancing at the end of the quarter. The US jobs report allowed hedge funds to get rid of the dollar. When everyone is buying, it makes sense to sell.

I believe the close correlation between the US stock market and the [EUR/USD ][1]should be soon back. The EUR/USD could drop if the growth of coronavirus cases results in the death rate increase. It will press down the S&P 500 and bring back the idea of another lockdown. The death rate is not increasing, as the medical services are better now, and there is a progress in the coronavirus treatment.

Dynamics of the number of new COVID-19 cases and fatalities daily

change

![LiteForex: EURUSD forecast for 06.07.2020][3]

Source: Nordea Markets.

Besides, the US stock market is supported by the Fed, and it is not recommended to go against the US central bank. As a result, I believe that the correction of both the US stock indexes and the EUR/USD will not be deep. I still stick to my previous [forecast ][4]for the [EUR/USD][1] consolidation in the range of 1.11-1.14

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Price chart of EURUSD in real time mode

![Hedge funds gave up on the dollar][7]

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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