Euro hold its side

Despite the fact that the EUR/USD pair managed to close the almost week of May in the positive zone, an unpleasant residue remained. At the end of the five-day week, investors remembered that the coronavirus vaccine was still being tested, and not the fact that they would be successful; that business activity in the eurozone remains depressed. that Donald Trump continues to threaten China; that without a rapid recovery in global GDP, it is too early to get rid of the US dollar.

The euro is growing due to the fact that a bad diagnosis has not been confirmed. Many waited for new import duties against China after accusing the White House of allegedly laboratory origin of COVID-19, but tariffs are still in place. The bears of the EUR/USD relied on a split in the eurozone and on the restriction of capabilities of the ECB by the German Constitutional Court, but the German and French project to create a fund to help eurozone countries affected by a pandemic allows us to talk about preserving the integrity of the currency bloc. As, however, is Christine Lagarde’s statement about the lack of accountability of Central banks to the governments. The European regulator will continue to support Italy and other states included in the Old World.

The project of Angela Merkel and Emmanuel Macron can be compared with the statement of the former head of the ECB, Mario Draghi, about his readiness to do everything possible to save the euro. The issuer of the bonds will be the European Commission, a first-class borrower whose debt yield is higher than, for example, in Germany. It will be about an emission of about € 150 billion over three years. The guarantor will be the European budget, the lion’s share of the resources of which are formed at the expense of the Germans. Moreover, the support is provided to the Eurozone, but its current state is slightly disappointing. The composite PMI may have risen from 13.6 to 30.5 in May, but it remains below the critical mark of 50, indicating a decline in GDP.

Dynamics of European GDP and business activity

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On the other hand, Markit draws attention to a significant reduction in employment and notes that it may take years to restore the eurozone economy. In my opinion, not everything is so critical. In the absence of trade wars and the widespread use of the coronavirus vaccine, one can count on the rapid growth of global GDP. The first to wake up from a pandemic is China, an important EU trading partner and a major consumer of raw materials. In 2018-2019, the slowdown in its economy against the backdrop of a conflict with the United States had an extremely negative effect on export-oriented Europe.

Counting on the EUR/USD rally makes no sense without a vaccine and a recovery in global GDP. Uncertainty in politics and the economy will support high demand for the US dollar. In this regard, this currency will have a new trump card as the US presidential election approaches.

Technically, despite the quotes of EUR/USD going beyond the Rhombus pattern, the bulls could not break above 1.1, which indicates their weakness. At present, the “Splash and Shelf” pattern is relevant with a consolidation range of 1.077-1.099. A breakthrough of the upper border of the “shelf” will allow you to buy euros, while breaking through the bottom will allow you to sell.

Daily chart for EUR/USD

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The material has been provided by InstaForex Company – www.instaforex.com