The euro continues to rise amid increasing demand for risky assets, prompted by the improving data on manufacturing and service sectors that were published yesterday. Concerns on a second wave of the pandemic are also decreasing, as many medical experts doubt that it will occur across Germany and other countries in the eurozone, thereby ruling out the return of widespread restrictions in the continent. Nevertheless, authorities are still urging vigilance as a surge in infections was observed due to the opening of borders in the eurozone, which reminds that the virus still has yet to be defeated. The local outbreaks may significantly affect the economy and the pace of its recovery, and the new time limits may partially slow recovery.
In the US, a new program is being prepared by authorities to further mitigate the economic damage of the coronavirus pandemic. According to the US Secretary of Treasury Steven Mnuchin, another package of incentive measures is being considered, which, in all likelihood, will be adopted in July this year and will focus more on companies affected by the pandemic than on providing universal assistance. It will help avoid the gap with a more resilient business, which has shown stability during the outbreak despite quarantine measures. Mnuchin also mentioned a possible postponement of tax payments, saying that this issue is currently being discussed. Fed Chairman Jerome Powell has aso repeatedly stated that assistance is required for the most vulnerable segments of the population,
Another point in Mnuchin's statement was the possibility of an annulment in the US-China trade agreement, but markets have not received more specifics about it. In all likelihood, the White House is considering such a scenario in the event that China does not go further on concessions in the negotiations on the second phase of the trade agreement.
As for macroeconomic reports, the data published yesterday on business activity in the US private sector failed to provide serious support to the dollar, despite the improvement seen in the index. According to the data released by the IHS Markit, the preliminary composite PMI in June was 46.8 points against its 37.0 points in May, which is good but is still lower than what economists had expected. Nevertheless, the decline in the manufacturing sector and the service sector has now slowed down.
Thus, the preliminary PMI for the services sector in June 2020 finally to 46.7 points, up from its previous value of 37.5 points in May, but is still slightly lower than the forecasted 48 points. The preliminary PMI for the manufacturing sector in June, meanwhile, settled to 49.6 points, up from its previous 39.8 points in May, but is still lower than the economists' prediction of 52.0 points. Continued weak demand for goods and services due to social distance measures and high unemployment remains the main problem in the country, and the uncertainty in future prospects also holds back the costs of many companies and households.
With regards to the US housing sector, sales of new homes in the country has increased, but also failed to provide significant support to the US dollar. According to the report of the US Department of Commerce, sales in the primary housing market increased by 16.6% in May, and determined to 676,000 homes a year. If compared to the same period of the previous year, sales increased by 12.7%.
The report on economic activity in the Richmond Fed also failed to support the markets, even though the indicator stopped declining after two consecutive months. According to the published data, the composite manufacturing index came out as 0 points versus its previous value of -27 points, while economists had expected the index to rise to -7 points. Such a value offset all the losses that the index suffered in March and April of this year, which is a good signal for further growth in activity.
Reports from The Retail Economist and Goldman Sachs also did not surprise the markets, which, according to the data, revealed that the index of sales in US retail chains grew by 4.0% for the week of June 14 to 20. Compared to the same period in 2019, the index fell by 10.4%. Meanwhile, Redbook noted that US retail sales fell by -1.4% for the first 3 weeks of June, and decreased by 8.0% compared to 2019.
In another note, Fed representative James Bullard delivered a series of statements yesterday, which claimed that the actions of the Fed has helped the US economy. However, the economy will not fully return to its pre-crisis levels yet, but this does not mean that the standard of living will be lower after the pandemic, since the Fed has made progress in reducing minority unemployment. Bullard believes of a strong recovery in the second half of the year, in which he expects inflation to return to the target level of 2%.
As for the technical picture of the EUR / USD pair, a slowdown in the bullish move may occur, since a downward correction is necessary to continue the growth of the trading instrument. Such will ensure large players in the market, especially those who are betting on strengthening the euro in the medium term. Thus, traders need to keep the quotes in the support level of 1.1285, but if nobody is there, it is best to postpone long positions until yesterday's low is updated at 1.1235. If the bulls manage to break above the resistance of 1.1250, the quotes will be led directly to the highs of 1.1420 and 1.1510.
