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02.06.2020 11:16 AM
GBP/USD and EUR/USD: The pound continues to strengthen amid positive outlook in recovery. Trump is ready to send troops into cities to take riots under control. Bulls of risky assets took a break.

The euro and the pound continues to strengthen against the US dollar amid positive expectations of economic recovery worldwide. Global economies are expected to return to pre-crisis levels after the coronavirus pandemic recedes. The lifting of quarantine restrictions in different countries also added to the increasing demand for risky assets.

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A new problem arose in the US recently, as riots and further unrest were observed across cities. Yesterday, US President Donald Trump recommended the governors to use the National Guard to the necessary extent in order to restore peace in the cities and take control of the situation. Trump warned that if one of the governors refuse to take the actions necessary to protect the lives of the people, he will deploy the armed forces himself, using the law "On the Uprising of 1807".

To date, it has become known that the New York authorities imposed curfew effective on Tuesday at 04:00 (UTC + 1) up to Wednesday at 10:00 (UTC + 1). However, many citizens ignored the decision, further aggravating the situation. Trump has already deployed several thousand armed troops to the metropolitan area of Columbia, and promised to take similar measures in other states if local authorities and law enforcement agencies fail to cope with the protests. Trump said that the curfew in Washington would be ensured through strict measures, and if necessary, all resources would be mobilized to stop the unrest in the country. The protests, which swept through the cities of the United States, started after the death of African American George Floyd at the hands of the Minneapolis police.

Hong Kong commented on the actions of the US authorities, accusing the latter of double standards. According to Hong Kong administration chief Carrie Lam, given the current situation in the US and Washington's criticism of the riots in Hong Kong, the US authorities are using double standards for protest settlement measures.

Meanwhile, weak macroeconomic report on business activity in the US manufacturing sector put pressure on the US dollar yesterday. But even though the result did not coincide with economists forecast, the value increased compared to the terrible data recorded in April, signalling the gradual resumption of economic activity. According to the data published by IHS Markit, the PMI for the US manufacturing sector rose from 36.1 points in April to 39.8 points in May. The report from ISM, on the other hand, revealed an increase in the index from 41.5 points in April to 43.1 points in May, slightly lower than economists forecast of 44.0 points.

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Construction costs in the US also declined in April due to the pandemic, but the drop was much lower than what was expected. According to the report of the US Department of Commerce, construction costs fell by 2.9% in April, while economists expected it to drop by 5.8%. Compared to the same period last year, total construction costs increased by 3%.

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The report published yesterday by the Congressional Budget Office concluded that the economy will take approximately 10 years to recover from the coronavirus pandemic. An analysis of updated economic forecasts was presented, in which it is expected that the real GDP of the US will shrink by 3% or $ 7.9 trillion between 2020 and 2030.

As for the technical picture of the EUR/USD pair, the dynamics of the currency remained unchanged, as the attempts of the bulls to breakout from the resistance level 1.1140 failed. Only a breakout from the said level will return the bullish mood in risky assets, which will lead to a test of new highs 1.1230 and 1.1340. Meanwhile, if the demand for the pair decreases, a downward correction will occur, and the quotes will go to the support level 1.1085 and then test the larger level of 1.0990.

GBP/USD

The British pound continues to strengthen against the US dollar, contrary to all forecasts of economists and experts, who expected it to weaken because of the approaching deadline regarding the decision on the extension of the Brexit transition period to 2021. Despite the previous answers of Boris Johnson saying that the UK will not take such measures, many still hope that the coronavirus situation in the country might make him change his mind.

The lack of trade agreement between the UK and EU will put pressure on the pound. Today, another round of negotiations will be held on the topic of the agreement, but many expect that no progress will be made on key issues.

As for the current technical picture of the GBP/USD pair, any positive news on trade negotiations will encourage bulls to open long positions. A breakout from the resistance level 1.2520 will lead to the update of the highs in the areas 1.2560 and 1.2600. However, if a downward correction occurs, large levels of support will form in the areas 1.2440 and 1.2375, but a breakout from these areas and a test of the 1.2290 low will not affect the upward trend formed on May 18 this year.

Jakub Novak,
Analytical expert of InstaForex
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