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EURUSD forecast for 24.07.2020

July 24, 2020

July 24, 2020

EUR/USD forecast: Euro will find support in AsiaDmitri Demidenko

Fundamental Euro forecast for today

The escalation of the US-China trade war may not result in the

EUR/USD correction

The US stock indexes featured the worst daily drop over the past four weeks amid a number of negative factors that discouraged investors. The number of the US initial weekly jobless claims has increased, the diplomatic conflict between Washington and Beijing has been escalated, and the number of new COVID-19 continues rising. According to Wells Fargo Securities, the US dollar is likely to gain back its positions because of the US stocks. If the [S&P500 ][1]declines much, the demand for the greenback will quickly rebound. I do not share this opinion.

Unlike the commodity currencies, the euro has hardly responded to the drop in the US stock indexes. Yes, the increase in the number of jobless claims from 1.3 million to 1.4 million is a negative factor. The U.S. Department of Labor refers to the week through July 17 as the benchmark for its July report, but the report fits in well with the idea of the Nike-shaped recovery of the US GDP. This idea is also confirmed with the leading indicator of the Atlanta Fed.

Dynamics of the U.S. economic recovery

![LiteForex: EURUSD forecast for 24.07.2020][2]

Source: Bloomberg

According to Moody’s Analytics, unless lawmakers quickly pass additional stimulus legislation, the risk of a double-dip recession will be increasing. The unemployment rate will remain in double digits until the pandemic ends. Axa Investment Managers notes that the US PMI will be declining until the number of coronavirus cases reaches its peak. Investors are more likely to accept the idea of the W-shaped recovery of US growth.

In my opinion, Congress should soon approve of the new fiscal stimulus package of $1 trillion. In addition to the huge volumes of cheap liquidity provided by the Fed and good news about the coronavirus vaccine, it should prevent a deep correction of the [S&P500][1]. Another matter is the US-China relations that are getting tenser and tenser. As a retaliation to the closure of the Chinese consulate in Houston, Beijing ordered the closure of the U.S. consulate in Chengdu.US secretary of state Mike Pompeo called for an end to “blind engagement” with China. Donald Trump said the U.S.-China trade deal means much less to him now due to the tensions over the coronavirus. Donald Trump tries to shift the blame for the incompetent response to the COVID-19 outbreak, but Beijing responds to his attacks, which it didn’t in 2019.

Most of China’s foreign-exchange reserves (the total is over $3 trillion) are held in U.S. dollar-denominated financial assets. It is because there are no alternatives. However, the issuance of bonds by the European Commission on behalf of the EU allows these alternatives to emerge. Yes, €750 billion is not that big amount, but it could become the beginning of the greenback’s end. China, insulted by Trump, won’t make concessions. Therefore, even the drop in the US stock indexes won’t necessarily result in the [EUR/USD][3] correction down. Euro will find support in Asia.

In the short-term, the market should respond to the release of the German and European PMI data for July. I expect that the actual data close to the forecasts could trigger a short drop in the [EUR/USD][3] price amid the principle “buy on rumors, sell on facts”. If the actual data are much higher than the expectations, the euro can continue its rally towards $1.17.

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Price chart of EURUSD in real time mode

![EUR/USD forecast: Euro will find support in Asia][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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