Contrary to gloomy forecasts, US unemployment in May fell to 13.3% from 14.7% recorded in April. At the same time, the number of employment increased by more than 2.5 million, demonstrating the strongest monthly increase since 1939. This allowed US stock indices to jump 3%, and the EUR / USD bulls to take profits. Optimism regarding the faster growth of US GDP (compared to the global counterpart), as well as increased profitability of the treasuries, left the greenback to a shoulder.
The main driver of the three-week rally of the main currency pair was signs of EU unity in the form of a significant expansion of fiscal and monetary incentives. The Bundesbank estimates that it expects German GDP to increase by 3.2% and 3.8% in 2021–2022 after the economy sags 7.1% in 2020, tax cuts in Germany, and other support measures will add 1% to GDP in the next year. At the same time, the almost 6% growth of the EUR / USD pair from the third decade of May suggests that a significant proportion of the positive has already been taken into account in quotes, and provides a basis for profit taking.
Will euro sales continue? The answer to this question will depend on US President Donald Trump and the Federal Reserve. Again, Trump threatens the EU with an increase in import duties on European cars. He does not like that Canadian lobsters are delivered to Europe without tariffs and American ones with 8% duties. This also applies to Beijing, which also obstructs lobsters from the United States to Asia. A trade war is the last thing a European economy needs in a bloodless pandemic, as well as a Chinese economy, which is starting to slowly but surely rise from its knees.
Will the Fed drown USD? Large-scale US Treasury bond issues. The improvement of the American labor market allows investors to take a risky step and get rid of debt obligations. It is assumed that the growth of Treasury yields will restrain economic recovery and increase the cost of servicing debts. In such circumstances, the Federal Reserve can use the Japanese and Australian experience of targeting rates on government bonds. This will deprive the greenback of an important advantage and will allow forming "longs" at EUR / USD on the rebound from supports at 1.1240 and 1.1200.
