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The report on the state of the American labor market for June gave plenty of food for thought, and the US independence Day – time to digest everything properly. If earlier the market was dominated by the idea of a V-shaped recovery of the world economy, which gave grounds for buying risky assets, now the principle of "tomorrow everything will be better than today" should be put on the back burner. Rather, on the contrary, the deterioration of the epidemiological situation in the United States suggests that tomorrow will be worse than today. It's time to adjust investment ideas, stop zealously getting rid of safe-haven assets.
At first glance, the strengthening of the US dollar in response to the best increase in employment outside the agricultural sector (+4.8 million) since records began in 1939 looks illogical. Strong statistics should have led to the growth of stock indices and weakened the position of the "American", which is in reverse correlation with them. However, investors are well aware that the good news is likely to end in June. The faster people return to work, the more COVID-19 infections, and the worse the labor market will be in July and August. It is too early to sell the dollar, which was proved by the rebound of EUR/USD from the resistance at 1.128-1.129.
The S&P 500 is still holding near 4-week highs, even though a record increase in the number of detected daily infections in the US. The indicator exceeded the psychologically important mark of 50,000, however, the death rate is still not growing, but most likely it will begin to do so within the next 6-10 days. As a result, there will be a new surge of interest in the topic of COVID-19 on the internet, and the growth in the number of queries on this topic in the Google search engine has a close connection with the American stock market. Correction of stock indices is becoming more likely and a pullback in the EUR/USD pair comes with it.
Dynamics of the number of infected and dead from COVID-19 in the United States
Dynamics of the S&P 500 and Google search queries COVID-19
Still, the S&P 500's fall to the March bottom looks extremely doubtful. A large-scale monetary stimulus from the Fed and progress in the process of creating and testing coronavirus vaccines will not allow the stock market to sink too deep. Therefore, the upward trend for both it and the euro remains in force, and the fall in these assets will allow us to buy them cheaper.
Especially since the German Parliament accepted the ECB's proposed justification for the feasibility and effectiveness of QE and allowed the Bundesbank to continue participating in the quantitative easing program. The conflict with the constitutional court from Karlsruhe seems to be over, there is little doubt that the EU will approve a large-scale fiscal stimulus, and a faster recovery of the European economy compared to the US will certainly play for the euro in the future.
Technically, a triangle was formed on the daily EUR/USD chart. The pair's quotes going beyond its lower limit, which suggests a test of support at 1.119 and 1.117, will increase the risks of a correction to 1.112 and 1.108, where the euro makes sense to buy.
EUR/USD, the daily chart
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