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06.07.2020 03:20 PM
EURUSD: The German Supreme Court is no longer a hindrance. Investors believe in the recovery of the European economy

The European currency continues to strengthen its position against the US dollar after information emerged that the German Constitutional Court and the European Central Bank will be able to agree on maintaining the Bundesbank's participation in the asset purchase program. Let me remind you that in May this year, the constitutional court in Germany declared that the central bank will withdraw from the program if the ECB does not provide a clear justification for the need for this program.

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Already today, the media reported that, despite all the differences between the constitutional court and the ECB, the Bundesbank will follow the instructions of the Finance Minister and the German Parliament, which is aimed at implementing the program of the European regulator. Against this background, the split within the Central Bank can be stopped, at least at such a difficult time for Europe, when the economy is beginning to gradually return to normal after the coronavirus pandemic. Some experts in this area believe the case has already been resolved, which will lead to further strengthening of the euro since the risks to the Eurozone and the single currency from the German court's decision were eliminated promptly.

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Data released today on the growth of production orders in Germany also encouraged traders betting on further strengthening of the euro. The report shows that orders in May increased significantly after a sharp collapse in April this year. However, growth was not enough after a record reduction in April. This confirms the fact that the German economy has not overcome the coronavirus as well as previously thought. Even after the lifting of quarantine measures, which led to a V-shaped surge in the activity, it will be very difficult to quickly return to pre-crisis levels.

According to released official data, orders in the German manufacturing sector in May 2020 increased by 10.4% compared to the previous month. For April, orders were revised downward and decreased by 26.2% compared to March. Economists had forecast that orders increased by 15% in May compared to April. But compared to the same period in 2019, orders fell immediately by 29.3%. The report also shows that domestic orders in May increased by 12.3% compared to the previous month, and export orders – by 8.8%.

Data on retail sales in the Eurozone once again convinced investors of the correct choice of an asset. The good pace of recovery in sales gives some confidence that the resumption of the economy has triggered an automatic jump in the activity. Of course, there will be no permanent rapid growth in the summer months, and by August the pace will slow significantly, as demand will become lower against the backdrop of rising unemployment in the Eurozone. A report from the European statistics agency indicated that retail sales in May 2020 jumped immediately by 17.8% compared to April. Economists had expected retail sales to grow by 14%. Surprised by the growth in clothing sales, which recorded an increase in the indicator immediately by 147% compared to April after a reduction of 54.7% and 55.5% in the previous two months.

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As for the technical picture of the EURUSD pair, the expected breakout of the resistance of 1.1300 led to the preservation of the bullish momentum of the trading instrument. The nearest target will be a fresh high in the area of 1.1350, and the further level remains the area of 1.1390.

Jakub Novak,
Analytical expert of InstaForex
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