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While the European currency and the British pound continue to decline against the US dollar, China has made it clear that it will not tolerate US interference in the internal affairs of the state, thereby responding harshly to yesterday's decision by Washington to suspend the preferential treatment of relations with Hong Kong.

Exchange Rates 30.06.2020 analysis

During today's speech, Foreign Ministry spokesman Zhao Lijian said that China is ready to take decisive measures in response to the actions of the United States, which has long interfered with Hong Kong's domestic policy and prevented the adoption of the national security bill. Yesterday's decision by the White House to exclude Hong Kong from export restrictions and stop all deliveries of defense sector products, including dual-use products, caused indignation among Chinese officials. The US has been taking such measures for quite a long time, which has now further worsened relations between the two countries, including trade. Against this background, the growth of the US dollar is not so unexpected, especially in the context of another surge in the incidence of COVID-19 worldwide.

The only thing that buyers of the European currency could count on today was the data on inflation in the Eurozone, which turned out to be better than the forecasts of economists. Slowing inflation in the services sector of the Eurozone is very much affecting the deflationary effect caused by the coronavirus pandemic. Reducing the supply is not a problem. The problem is just a strong reduction in demand, which is unlikely to recover so quickly against the background of the cancellation of quarantine measures. The underlying price pressure will increase only after demand overtakes supply, and as expected by leading economic agencies, this scenario is unlikely to be implemented this year, which will allow the European Central Bank to keep the current monetary policy at lows for quite a long time.

If we take the consumer price index as a whole, the increase was mainly due to higher energy prices and the easing of quarantine measures. According to the statistics agency, the consumer price index (CPI) of the Eurozone in June 2020 increased by 0.3% compared to May, while energy prices increased by 1.7% compared to the previous month. As for core inflation, which does not take into account volatile categories, it slowed to 0.8% against 0.9% in May. Central Bank economists expect that this year, inflation in the Eurozone will not exceed the figure of more than 0.3% and will accelerate only to 0.8% in 2021.

Exchange Rates 30.06.2020 analysis

As for individual countries, yesterday Germany surprised with its indicators, which can not be said about France, where the preliminary consumer price index (CPI) in June fell by -0.1% and grew by only 0.1% year-on-year. Economists had expected growth of 0.2% and 0.4% in June, respectively. As for the EU-harmonized consumer price index in France, it slowed to 0.1% per annum in June, compared to 0.4% in May.

Italy also did not Shine in this direction. According to the report, the preliminary consumer price index (CPI) of Italy in June increased by 0.1% compared to May and fell by 0.2% per annum, with economists' forecasts for growth of 0.1% and a reduction of 0.3%.

As a recent study shows, fears about the collapse of the Eurozone eased in June this year, however, the strengthening of the European currency was not affected. Today, the Sentix index was released, which fell to 7.7% from 12.9% in May and 15.0% in April. The reduction of fears is more political than economic, which is the basis for all the disagreements. The report indicates that the index decreased due to the assessment of the improvement of the situation with the pandemic and the control of the spread in all EU countries. As for more economic issues, a confrontation between the German federal court and the European Central Bank is also likely to be avoided after the recent resignation of its Chairman.

As for the technical picture of the EURUSD pair, the market remained on the side of the euro sellers, whose main task is to break the lows of last week in the area of 1.1195. If this happens, the bearish trend will continue with a new force, which will lead to a test of the lows of 1.1160 and 1.110. It will be possible to talk about a return to the market of buyers only after overcoming the upper limit of the channel in the area of 1.1290.

GBPUSD

The pound remained under pressure in the pair with the US dollar after today's report, which included revised data on the growth of the UK economy for the 1st quarter of this year, and they were revised for the worse. Thus, according to the final estimate, in the 1st quarter compared to the 4th quarter, the UK GDP decreased by 2.2%, and not by 2%, as originally thought. According to updated data, compared to the 1st quarter of last year, GDP decreased by -1.7%, and not -1.6%, as previously reported. The negative current account balance of the UK's balance of payments also increased to 21.1 billion pounds against 9.2 billion pounds in the previous quarter. Economists had forecast a deficit of 15.7 billion pounds.

Exchange Rates 30.06.2020 analysis

As for the technical picture of the GBPUSD pair, the pound has already reached the support of 1.2250, the breakout of which will further increase the pressure on the pair and lead to an update of the lows of 1.2185 and 1.2120. It will be possible to talk about a break in the downward trend only after the trading instrument returns to the resistance of 1.2320, and an update to the maximum of 1.2390 will strengthen the corrective bullish impulse.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Eder Anderson,
Analytical expert
InstaForex Group © 2007-2020
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