05.06.202012:04 Forex Analysis & Reviews: Time to take profits? EUR / USD marked a dizzying rally

Long-term review

Exchange Rates 05.06.2020 analysis

Euro took the lead in the foreign exchange market following the results of the ECB June meeting.

The growth of the single European currency was also facilitated by the weakening of the greenback on a wide front. After a short-term recovery, the USD index resumed its decline and fell below 97 points for the first time since early March.

The rally of US stock indexes against the backdrop of risk appetite puts pressure on the protective dollar, which even the growth of Treasury yields does not help.

The European Central Bank gave the market much more than what was expected. The regulator increased the emergency asset buyback program by € 600 billion, to € 1350 billion, and announced that it would last at least until June 2021. As a result, the single European currency strengthened, and the EUR / USD pair reached three-month highs, rising above 1.1300.

According to ECB President Christine Lagarde, the decision to expand the QE was made unanimously by the Governing Council. Meanwhile, The Financial Times newspaper, citing informed sources, reports that the Bundesbank president Jens Weidman warned the Frenchwoman that if this kind of QE lasts a long time, the European regulator risks being accused of financially financing national governments, which contradicts EU law. The ECB is ready to tread on its own rules in a pandemic. However, as you know, in war, all means are good.

The single European currency showed an eleven-day growth against the US dollar. This is the longest winning streak since 2011, but the continuation of the pair's upward campaign is in question and it's not only the RSI indicator or stochastic oscillator that signals overbought EUR / USD. Many euro trump cards have already been won, and the process of weakening the greenback and the growth of the S&P 500 index is proceeding too quickly amid continuing tensions between Washington and Beijing, as well as ongoing talks about a slow recovery in the US economy. In addition, according to the ECB forecasts, in 2020 the eurozone GDP will decrease by 8.7% (subject to the second wave of the COVID-19 pandemic by 12.6%), and in 2021 it will grow by 5.2%. At the same time, Wall Street experts' consensus assessment suggests that the US economy will sink by only 6.6% this year and recover by 5% next year.

Apparently, fiscal and monetary incentives are already in the EUR / USD quotes. The implementation of the principle of "buy by rumors, sell by facts" may well trigger a wave of correction.

In addition, the euphoria in the US stock market may end at any moment, as Washington and Beijing continue to inflict painful injections to each other, and a rise in unemployment in the US of up to 20% can increase concerns about the slow recovery of the national economy. Weak statistics on the US labor market in May could cause the S&P 500 to fall and create the preconditions for short-term euro sales in the direction of $ 1.1315 and $ 1.1280.

Viktor Isakov,
Analytical expert of InstaForex
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