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07.05.2021 09:55 AM
Forecast for EUR/USD: Euro to rally on strong US data. World leaders are ready to unite against Covid.

Euro rallied yesterday after Europe published strong reports on its economy. At the same time, improving indicators on the US labor market are raising demand for risky assets as apparently, such signals the recovery of the global economy.

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But the most noteworthy news is the announcement that the European Commission (EC) is planning to discuss US proposal on the patents of COVID-19 vaccines. The resolution aims to renounce intellectual rights on the vaccines, thereby allowing pharmaceutical companies around the world some access to the trade secrets of how the drugs were made. Of course, the existing vaccine makers are against this, mainly because it would make them lose huge amounts of money. Nonetheless, the World Health Organization (WHO) called on developed countries to follow the United States and support the initiative, even though experts warned that it could lead to thorny negotiations in the World Trade Organization.

Many European countries have expressed their support for the resolution, among which are France and Germany. Consequently, stocks of many pharmaceutical companies dipped - BioNtech lost 16%, while Pfizer lost 2.8%.

The European Commission also pointed out that vaccination in the EU has improved quite significantly. Approximately 30 Europeans are vaccinated every second, and at the same time the bloc is engaged in the export of the vaccine.

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Meanwhile, Joe Biden's ambitious proposal to raise $ 700 billion by increasing tax audits of wealthy families and corporations has pitched skepticism among many people. Apparently, it would take several years to see evident results, especially with the time required for hiring new employees and completing the audit of very complex checks.

Earlier, the Biden administration submitted a resolution to increase IRS funding by more than 10%, in addition to the $ 80 billion investment which aims to bolster depleted audit staff and outdated technology. Experts said the government will have a difficult time achieving this, partly because of the time constraint. The checks are also subject to appeals and legal proceedings, which means they can lead to additional costs. In short, the missed payments can return to the Treasury much less than the amount that Biden expects.

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On the bright side, recovery in the US continues. In fact, the Department of Labor recently reported that jobless claims in the country have dipped to 498,000, which is 92,000 less than the revised record last week. This confirms that the labor market is recuperating and may soon return to its pre-crisis state.

Labor productivity also grew by 5.4%, which is a very good news as it fell by 3.8% in the last quarter.

And today, a monthly report on employment will be released, to which analysts predicted a 978,000 increase in jobs. Unemployment rate is also forecast to slip from 6.0% to 5.8%.

If the data exceed expectations, demand for the euro will grow.

Still, bullish traders need to push the quote above 1.2059 if they want a larger jump towards 1.2090 and 1.2120. Otherwise, the euro will dip to 1.2025.

Jakub Novak,
Analytical expert of InstaForex
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