28.05.202013:22 Forex Analysis & Reviews: EUR / USD: Vague doubts torments euro

Last night, the European Commission presented an unprecedented plan to support the economy of the Eurozone, providing for the allocation of € 750 billion in subsidies and loans to EU countries to recover from the crisis caused by the COVID-19 pandemic.

Against this background, the EUR / USD pair reached its highest level since early April, rising above 1.1030. However, without the support of US stock indices, the single European currency began to step back.

According to the consensus forecast of experts recently surveyed by Reuters, the S&P 500 index will finish the current year in the region of 2950 points, that is, at levels close to the current. Although most experts believe that due to large-scale incentives, the return of the US stock market to the March bottom is unlikely, as it is not yet clear how things will be after the pandemic. In addition, the risks of escalating tensions between Washington and Beijing, as well as the threat of a second wave of coronavirus, and the deterioration of the political landscape in the United States due to the presidential election will put pressure on the S&P 500.

The single European currency has also lost some of its achievements against the US dollar due to doubts that the scheme proposed by the European Commission will eventually be implemented.

"It is probably too early to say that the EUR / USD rally is the beginning of a serious reassessment of European risk. The path to allocating a recovery fund from the EU's long-term budget will be bumpy. Therefore, it is difficult to say that the euro is moving up in a straight line from current levels, "said Chris Turner, strategist at ING.

The growth of the euro is expected to be restrained until the announcement of the ECB's monetary policy decision, which will be adopted next week.

According to Christine Lagarde, head of the ECB, the regulator's previous assessment of the 5% subsidence of Eurozone GDP is likely to be outdated, and the region's economy will shrink by 8%-12% in 2020. Such comments can be regarded as a signal of the expansion of the quantitative easing (QE) program at the June meeting of the Governing Council of the ECB.

Meanwhile, the growing tensions between the United States and China are leveling optimism associated with the gradual opening of national economies amid easing of the restrictive measures introduced due to the coronavirus pandemic. This supports the greenback.

The United States is currently considering a number of options to punish Beijing for tightening control over Hong Kong, including sanctions, tariffs, and restrictions on Chinese companies.

Technically, the EUR / USD pair exceeded the multi-week trading range, which changed its short-term sentiment to bullish. If the pair manages to gain a foothold above the 200-day moving average, which runs around 1.1010–1.1015, this will confirm a bullish break and aim it at the 1.1100 round mark and further to the area of 1.1145–1.1150 ( peak levels at the end of March).

Meanwhile, a EUR / USD pullback below 1.1000 may attract buyers in the 1.0980 area, which will limit the decline in the pair. If this does not happen, then the bears will take a course at 1.0930 and further at 1.0900. A breakdown of these levels will neutralize the bullish mood and aim the pair at 1.0800.