29.06.202016:40 Forex Analysis & Reviews: EUR/USD: Germany's economy inspires bulls, but main challenge awaits ahead

On Monday, EUR/USD is trading with the highest volatility among major currency pairs. On the whole, the US dollar is losing confidence across the board, but traders are in no hurry to take advantage of it. Meanwhile, most currency pairs are trading quietly. GBP/USD reversed downwards in light of bold statements from Boris Johnson. The British Premier said over the weekend that London is ready to terminate further talks with Brussels on a full-fledged trade deal. At the same time, Boris Johnson admitted the so-called Australian scenario. In its trade relations with the EU, Australia sticks to the principles of the World Trade Organization, though there are separate agreements for particular kinds of goods. In other words, the UK Premier unveiled a negative scenario which is bearish for the sterling. Therefore, GBP/USD is trading lower today despite the broad-based weakness of the US dollar.

Back to EUR/USD. It is trading with the opposite dynamic. The pair surged sharply, having hit a 5-day high which mirrors a correctional climb of the single European currency. The greenback's weakness is of secondary importance as the euro is holding the upper hand.

Statistics from Germany accounts for such developments. Investors cheered inflation data published today. The overall CPI came in better than expected. The index grew to 0.6% month-on-month (the strongest score since April 2019) while then annual inflation accelerated to 0.9% (stronger than the expected 0.6%). The HICP also rose more than expected on month from a zero value previously which is the highest metric over the latest 14 months. In annual terms, the HICP climbed to 0.8%, the same value like in March this year.

The data released today promise upbeat figures for the eurozone which will be posted tomorrow. Still, the consensus is rather pessimistic. Analysts fear that the composite CPI could dip into the negative territory for the first time for a few years. The CPI is expected at -0.1%. The core CPI is likely to show a negative value as well at -0.8%. In case the June CPI for the euro area turns out to be at least 0.1% better than the forecast, the euro will find solid support. In the context of the higher inflation in Germany, there are some grounds for the same scenario in the eurozone.

The bullish move of EUR/USD is propelled by the coronavirus factor. While Europe is reopening its state borders, the US is on the verge of the second pandemic wave. Today the European Commission approved the list of the countries which receive permission to open their borders from July. A different source says about August. The greenlight is given to such countries as Monte Negro, Serbia, Georgia, Canada, Algeria, Australia, Japan, Morocco, New Zealand, Rwanda, South Korea, Thailand, Tunisia, Uruguay, and China on condition of mutual steps. The red with travel restrictions contains the US, Russia, and Brazil.

These are top three countries with the anti-rating in terms of the coronavirus rates. The situation in the US is the most worrisome with the daily rate of over 40,000 new cases. The number of the infected people topped 2.5 million over the weekend. In other words, every fourth COVID-19 victim in the world comes from the US. The cluster has shifted from New York towards the South and the West of the country. 20 states report growing infection rates with Florida and Texas the worst affected. This weekend, Florida set a new record in coronavirus cases. 9,585 cases were logged there in a single day. Over the latest 7 days, the anti-record has been beaten by Arizona in terms of new cases per one million citizens. South Carolina, Arkansas, and Utah come in descending order.

So, investors are alarmed by the statistics despite the fact that the White House has ruled out the second shutdown Nevertheless, in early June the daily growth of new cases was 17-25,000. As of now, the daily count is over 40,000 cases. This dynamic is putting pressure on the US dollar.

To sum up, EUR/USD has an excuse for a correctional growth on Monday. Still, long deals look risky. If the eurozone's inflation data comes out worse than expected, the currency pair will reverse abruptly down at least towards support of 1.1160 (the lower border of Bollinger Bands which coincides with the Kijun-sen on the daily chart). At the moment, the price on the daily chart is in the middle of Bollinger Bands. Trend indicators have not formed any clear-cut signals yet. Nevertheless, if buyers assert themselves and the pair trades firmly above 1.1280, the Ishimoku Cloud will make the bullish signal – the Display of all 5 lines. In this case, it would be a good idea to consider long positions with the target of 1.1380 (the upper border of Bollinger Bands).