At the beginning of the week, markets continue to extend the rally. The S&P 500 index was up by 47% from the March low, lacking just 5% to reach a record high. Meanwhile, the difference between the current estimates and the forecasts of Wall Street experts for the year end has never been so big: it is almost 10%. Investors doubt that the stock market will be able to continue its rally which creates more uncertainty. Yet, the instability in the market is the best condition for the greenback to grow.
The S&P 500 index rose mainly on the market confidence that the V-shaped recovery of the US economy will take place soon, and the government will adopt another large-scale stimulus package. At the moment, most of the positive factors have been already priced in by traders.
Yesterday, the National Bureau of Economic Research said that the 128-month expansion of the US GDP (the longest on record since 1854) came to halt in February, and the United States fell into deep recession. Hopefully, this economic downturn will be short-lived, and strong data on American employment for May can serve as a proof. The drop in unemployment rate from 14.7% to 13.3% last month makes Republicans doubt the feasibility and, most importantly, the volume of further proposed incentives. Is it worth going deeper into debt when the economy is recovering and Americans are returning back to work?
Obviously, the White House, congressmen, and the Fed have done a great job. Large-scale fiscal and monetary incentives have smoothed the recession and may well help national GDP return to the pre-crises levels. Meanwhile, the World Bank expects the US economy to shrink by 6.1% in 2020, whereas the global economy is expected to contract by 5.2%. When Citigroup specialists announced the beginning of a long-term bearish trend for USD, they relied on a slower US GDP recovery compared to the global economy. However, incentives can change everything.
Thus, despite the failure the greenback faced in early spring and summer, it is still too early to give up on it. The lack of the bullish momentum on S&P 500 and the euro, as well as the continuing uncertainty over the Washington-Beijing trade conflict, may result in a pullback. However, ahead of his presidential election, Donald Trump will most probably not be interested in a rapid plunge in stock indices. Therefore, we can use these pullbacks to open long deals on the EUR/USD pair.
The main currency pair is fluctuating in a narrow range, as investors prefer to trade cautiously ahead of the Fed meeting in June.
Most likely, the regulator will stick to a stimulating monetary policy. Yet, there is no need to introduce more fiscal stimulus packages, not to mention the negative rates. One of the main questions which Jerome Powell and his colleagues have to address goes as follows: is the worst part over? The answer can have a very strong effect on the dollar. It is also worth paying attention to the Central Bank's new economic forecasts, which may confirm the recession in the first quarter.
The technical picture for the EUR/USD pair remains the same with the bullish trend in place. So, when the quotes enter the area of 1.1225–1.1230, this can be a good opportunity to open buy positions. The mark of 1.1200 will serve as a strong resistance for the bears.
The nearest strong level of resistance is set at 1.1340. The downtrend line, which was formed from the peak levels of February 2018, can be traced above it. A breakthrough of these boundaries can trigger the bullish move with the aim at 1.1450, and then the price may go higher to the psychologically important mark of 1.1500
