EURUSD forecast for 07.07.2020

July 7, 2020

Euro will determine its own fateDmitri Demidenko

Fundamental Euro forecast for today

The bulls on EUR/USD have a lot of trump cards, both external and

internal

When Chinese media say that promoting a healthy bull market after a pandemic is more important to the economy than ever, you can buy indefinitely. Although the growth of Shanghai Composite Index by 14% over 5 trading days reminds pessimists of a growing bubble similar to the that of August 2015. In fact, leverage is now half as much, PBOC’s liquidity control is tighter, and faith in a V-shaped economic recovery of China is a strong argument in favour of the longs.

What is good for China is good for the eurozone. The export-oriented economy of the euro bloc experienced serious difficulties during the Beijing and Washington trade wars in 2018-2019, which led to a weakened euro. The pandemic has changed a lot. China dealt with COVID-19 quite some time ago, and now Europe can count on the growth of external demand as the Chinese GDP returns to the trend.

Moreover, the €750 billion bond issue by the European Commission to fight coronavirus is a tidbit for investors from Asia. The US Department of the Treasury should understand that treasuries are not the only game in the city, and the transfer of capital from the New to the Old World can affect the dollar badly. According to CrossBorder Capital estimates, three-quarters of the decline in US Treasury bond yields and a substantial part of the 30% greenback strengthening since the mid-2000s are connected with high Chinese demand for US assets. If this process reverses, the USD index will lose a quarter of its current value. At the initial stage of this process, the Shanghai Composite Index pulls the [S&P 500][1] up - that helps to improve the global risk appetite and leads to the selling of safe-haven assets, including the US dollar.

Dynamics of stock indexes

![LiteForex: EURUSD forecast for 07.07.2020][2]

Source: Trading Economics.

It should be noted that the euro is not going to trust its fate exclusively to Beijing, it has its own trump cards, including a better epidemiological situation than the United States, the revival of domestic demand, the unity of the eurozone countries and a strong leader - Germany. While American unemployment rose from 3.5% in February to 11.1% in June, European unemployment rose from 7.2% in February to 7.4% in May, retail sales in the euro bloc countries increased in May by a record 17.8%, German manufacturing orders increased by 10.4%. The EU stands confidently on its feet, while the US is discussing whether to expect a second lockdown or not.

Unemployment dynamics

![LiteForex: EURUSD forecast for 07.07.2020][3]

Source: Bloomberg.

Europeans managed to avoid a constitutional crisis, and the Bundesbank will continue to participate in the ECB’s quantitative easing program after approval by the German government and parliament.

Thus, support from China, divergence in the economic growth of the Eurozone and the USA, as well as the interest of the White House and the Fed in strong stock indexes create the prerequisites needed for the continuation of the [EUR/USD][4] rally. The catalyst for further growth of the pair will be a confident breakthrough of resistance at 1.1335. In order to prove the seriousness of their intentions, the bulls must hold the support at 1,129-1,13.

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Price chart of EURUSD in real time mode

![Euro will determine its own fate][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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