31.07.202011:02 Forex Analysis & Reviews: EURUSD: Dollar to decline due to new stimulus measures aimed at restoring the US economy

The good data on the German labor market increased demand for risk assets, particularly the European currency, which prevented the bears from giving more powerful technical pressure on the trading instrument. In addition, the report on the US GDP for the second quarter also came out strong, being better than the forecasts of economists, and supported the euro and the pound, which led to new powerful waves of growth in the EUR/USD and GBP/USD pair in the trading chart.

According to the report, unemployment in Germany dropped unexpectedly in July, a testament to the economic recovery following the coronavirus pandemic. The report of the Federal Employment Agency indicated that applications for unemployment benefits in July fell by 18,000 after rising by 68,000, while economists expected an increase of about 50,000. Hence, the unemployment rate in Germany remained unchanged in July amounting to 6.4%. Analysts forecast the unemployment rate to rise to 6.5%.

However, a serious slowdown was still observed in the German economy in the 2nd quarter, but such did not lead to any major changes in the market. Investors already knew that this quarter would be one of the worst in the entire history of statistics, so it was not a surprise that the GDP for the second quarter fell 10.1% due to the coronavirus pandemic and quarantine restrictions.

The sharp decline in consumer prices was also expected. According to the report, the preliminary CPI and harmonized CPI each fell 0.5% in July, lower than the forecast of 0.3 and 0.4% respectively, but compared to the same period last year, consumer prices decreased by 0.1%.

Another report, which balances between good and bad, was also published yesterday, revealed that consumer sentiment in the eurozone recovered slightly in July, but remained below the crisis levels. Optimism was noted among companies, but consumer confidence, on the other hand, declined. Thus, the index of sentiment, which reflects the confidence of companies and households, rose from 75.8 points in June to 82.3 points in July, while economists predicted it to be 81.0 points. Consumer confidence, meanwhile, fell from -14.7 points to -15.0 points, which indicates the fears of households and their cautious assessment of the prospects for the economy.

In the afternoon, the data on US GDP was then published, which turned out to be better than the forecasts, improving the stance on the recovery of the US economy. The record decline in GDP did not surprise anyone, but the gradual increase in the initial claims for unemployment benefits indicates the likelihood of agreement and adoption of new measures to stimulate the economy. So far, the Republicans and Democrats have not reached an agreement on extending the volume of payments of additional unemployment benefits yet, as well as on the adoption of new stimulus measures from the government.

According to the report released by the US Department of Labor, the number of initial claims for unemployment benefits rose by 12,000 and amounted to 1.43 million on the week from July 19 to July 25, while economists had expected the figure to be 1.45 million. Initially, the US economy contracted 32.9% in the second quarter, but economists predict that GDP would fall 34.7% y/y. Although economic growth is expected in the 3rd and 4th quarters, it is unlikely that such will cover the decline in the 2nd quarter, as the recent data do show that the pace of economic recovery is slowing down, and a worsening situation in the labor market will only exacerbate the situation.

As for the technical picture of the EUR/USD pair, a breakout from the resistance level of 1.1900 will push the quote in the direction of highs at 1.1950 and 1.1990, and the update of the psychological mark at 1.2020 will be a kind of victory for the bulls over the bears. But if demand for the euro decreases, the first support level will be 1.1840, and the larger range, which the bulls will actively defend, is the level of 1.1735.