Last week, American and European currencies rose to price peaks, experiencing unprecedented euphoria. But sometimes, enthusiasm was replaced by bouts of pessimism, but the overall picture remained within the upward trend. However, experts warn the markets against excessive optimism, fearing a sharp decline in the EUR/USD pair in the near future.
After an impressive rally of both world currencies recorded last week, the pair may take a break. Experts believe that markets need a break to rethink what is happening. First of all, this concerns the EUR/USD pair, which experienced unprecedented turbulence against the background of the pandemic COVID-19.
Many experts draw attention to the ambiguity of the dynamics of the US currency. Earlier, analysts believed that the dollar could be depreciated due to problems with the national economy, which declined due to problems with coronavirus infection. However, a more detailed analysis of the situation suggests the opposite. To date, the US stock market has recovered, having recovered losses after the March collapses, and the situation with rising unemployment, plunging markets into a trance, was not so shocking.
It can be recalled that last week, statistical data on the labor market (ADP), received from the United States, became an occasion for optimism. The American macro statistics confidently speaks of a decline in the layoff rate, that is, large-scale job cuts are not expected in the near future. According to experts, the unemployment rate in the US peaked in April, and now we should expect a smooth decline. Economists consider the May ADP to be the second among the worst indicators ever recorded. However, it is much better than in April, when job losses in the country reached an impressive 19.6 million. At the same time, analysts recorded a decline in the number of applications for unemployment benefits.
On the other hand, the United States is expected to release the next data on applications for unemployment benefits next Thursday, June 11. According to experts, this indicator continues to decline steadily. In this situation, it is difficult to blame the markets for excessive optimism, since there is a significant reason for it. Experts believe that against this background, the USD will take a chance to strengthen. Strong support to the dollar can be provided by the Fed's preservation of the interest rate at the current level - 0.25%. It can be noted that the decision on the rate, as well as on further monetary policy will be made on Wednesday, June 10, at the next meeting of the regulator.
The European currency, along with the American one, also repeatedly gave rise to optimism last week. First of all, this was facilitated by the approval of impressive packages of financing for the eurozone economies that were most affected by the consequences of the COVID-19 pandemic. It can be recalled that earlier the ECB announced the expansion of the specialized financial assistance program (PEPP) by € 600 billion. The experts consider large-scale injections into economically "lame" regions a plus of this decision, and the urgency of such initiatives is a minus.
According to analysts, such measures indicate an impressive scale of the fall of the European economy, which could be incorrectly estimated in previous months. In such a situation, there is no reason for euphoria, even in the case of a rise in the euro. Experts say that a short-term surge in optimism will slightly help the single currency. Bank of America's currency strategists are generally categorical in this matter, arguing that the euro will fall to $ 1,0500 by the end of 2020. Experts predict a significant deterioration in the mood of the market and, against this background, a further strengthening of the dollar. If this scenario is implemented, the European currency will have to retreat, and then climb to the price peaks for a long time and with great obstacles.
The disappointing macro statistics will contribute to the systematic reduction of the euro. At the very end of this week, June 12, markets are waiting for information on industrial production in the eurozone. According to preliminary estimates, the subsidence of this indicator may amount to 20.6% for a month, and the annual decline can reach 31.2%. This will be a blow under the breath for the euro, so experts warn the markets from excessive optimism. However, the beginning of the week for the EUR/USD pair was not bad. On Monday, June 8, the pair opened almost in the "positive" zone. At least a pair of EUR/USD tried to "save face" and not drop below 1.1287 - 1.1288. A little later, the pair approached the range of 1.1298 - 1.1299, trying to break through the psychologically significant level of 1.1300. These attempts occurred with varying success, but gave a boost to the EUR/USD pair for a long time.
Experts' concern about major currencies are caused by the current situation in the global economy. According to ECB economists, the consequences of the economic crisis caused by the COVID-19 pandemic will make themselves felt in the near future, and this will cause a series of shocks in the market. To date, the ECB emphasizes that these consequences exceed all permissible risks of financial stability. Bank of America experts agree with the regulator, noting that the global economy will drop by an impressive 4.3% in 2020, although the previous forecast assumed a 3% reduction.
According to analysts, it is expected that the profitability of eurozone banks will decline to 2.4% this year from the previous 5.4%. Many financial institutions will have to solve problems with liquidity and loans, including "bad" ones. At the same time, European financiers forecast an increase in the eurozone budget deficit by 8% and an increase in the sovereign debt of the Euroblock countries to 102.7%. This can seriously "knock down" the single currency, which has just begun to come to its senses. In a similar situation, experts warn that the dollar will suffer, despite its stability.
Many analysts are afraid of a price failure of the EUR/USD pair in the near future, if the pair does not receive support for further growth. For those who have risen high, it is most painful to fall – a well-known truth that you do not want to experience once again. As a result, the conquest of the next heights by the pair may be postponed indefinitely, and for the world's leading currencies, such downtime is unacceptable. However, experts expect to achieve a balance in the EUR/USD pair, which will remain both in the short and medium-term.
