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EURUSD forecast for 09.07.2020

July 9, 2020

July 9, 2020

EUR/USD forecast: Euro has caught a tail-windDmitri Demidenko

Fundamental Euro forecast for today

The [EUR/USD][1] bulls are supported by good news from Asia and the

stabilization of European financial markets.

For a long time, the entire financial world has been following the US, depending on the US stock indexes. However, the economic situation in the US is like “hope for the better but prepare for the worse”, and other countries are now coming in the game. The continuous growth of the Chinese stocks over the last seven days and the yuan’s rise to its four- month highs indicate the strength of China’s economy, which might become the world’s financial leader in the future. At the beginning of July, the Shanghai Composite, not the [S&P 500][2], is the best indicator of the global risk appetite, the US stock index is following the Chinese and not vice versa.

When they were moving in opposite directions in 2018-2019, investors saw this as a signal that the US was winning the trade war. Donald Trump could afford to use a carrot-and-stick policy to force China to sign the trade deal profitable for the US. Now, Washington can only use minor threats, including hints at bans on TikTok or the entry of Chinese students into the USA, as well as the decision to unpeg the Hong Kong dollar to the US dollar, which would create problems for foreigners working with the Chinese markets. Beijing, which didn’t respond to the US attacks earlier, now makes loud statements that the current US policy, based on strategic misjudgments that lack factual evidence, is a paranoia.

China is now more confident, gaining strength also because the Shanghai Composite is steadily growing, and Donald Trump’s approval ratings are falling. According to Goldman Sachs, the probabilities that Joe Biden will capture the White House, and Democrats will gain control of the Senate, are 43% and 62%, up from 30% and 61% in February. If Trump hints at the escalation of the US-China trade war under the current conditions, the [S&P 500][2] drop will ruin his plans for re-election. The US stock index is now following its China’s peer, and experts say the S&P 500 is not responsive to the deterioration of the epidemiological situation in the USA. They explain it by the Fed’s huge monetary stimulus that has pressed the Treasury yields down. However, the US stock market rose when the Treasury yields were growing. This signals that the [S&P 500][2] reacts to the US economic state, not to the low interest rates.

Dynamics of S&P 500 and Treasury yields

![LiteForex: EURUSD forecast for 09.07.2020][3]

Source: Bloomberg

A tail-wind from Asia followed by growth of the risk appetite is a reason to sell safe havens, including the US dollar. The [EUR/USD][1] has hit its monthly highs also because of Angela Merkel’s statement. Germany’s chancellor says the eurozone has seen “huge economic upheaval” and the governments cannot afford to “waste any time” discussing the plans to protect the euro-area economy. Merkel underlined the need to swiftly adopt the French-German €750-billion recovery plan. The decline in the yield spread between the bonds of the euro-area peripheral countries and Germany to the lowest levels since March signals that the financial stress has eased.

Euro looks strong, it should try to break out the resistances at $1.1385 and $1.1405. If the resistances are broken out, the bulls will go ahead, and the price will continue rising.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro has caught a tail-wind][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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