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30.06.202010:59 Forex Analysis & Reviews: EUR/USD and GBP/USD: Demand for the euro and the pound will continue to decline due to escalating COVID-19 incidence worldwide. As for the dollar, demand will continue to rise amid current uncertainty on the US economy.

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The euro rose yesterday morning amid talks that a meeting between the leaders of France and Germany could take place in the near future. Such will put forward the discussion on the budget of the proposed assistance package to the EU, but so far, there has been no news in the media that a meeting took place. Thus, the bulls quickly lost optimism so they failed to push the EUR / USD pair above the resistance level of 1.1290. In addition, even if the meeting was held, it is apparently impossible to achieve the desired result as judging by the latest data, the effects of the removal of quarantine restrictions as well as the opening of borders within the eurozone have already yielded "results" and led to a second outbreak of the coronavirus.

Exchange Rates 30.06.2020 analysis

The improving prospects for the eurozone economy also supported the euro yesterday. The report published by the European Commission revealed that in June this year, the economic sentiment indicator continued to grow from 67.5 points to 75.7 points. If this trend continues, the decline in Eurozone GDP in the 2nd quarter of 2020 will not be as rapid as expected. However, the further dynamics of recovery after the 2nd quarter remains very uncertain due to the high probability of a second pandemic outbreak. Further mitigation of quarantine measures should help companies increase activity, but at the moment, the long-term average index is 100 points, which means that companies and households are still pessimistic about their own prospects.

Meanwhile, many traders also waited for the report on German inflation yesterday, which turned out to be twice as good as economists had expected. If this continues, the indicator for July will most likely demonstrate further growth as well. Consumer prices will also inevitably rise, amidst a good recovery in economic activity. However, economists fear that the planned reduction in VAT in Germany will have a significant impact on price growth by the end of the year.

Exchange Rates 30.06.2020 analysis

According to the data, inflation in Germany increased by 0.6% in June of this year, largely due to the recovery in oil prices. Some signs of improvement were also observed in core inflation, which does not take into account volatile categories. However, a quick recovery of the indicator is not really expected, since the effects of rising prices in the service sector caused by limited supply will gradually go down and undergo a significant correction in the coming months. Food prices remained at a rather restrained level.

Exchange Rates 30.06.2020 analysis

Improving data on the US economy also supported the dollar in the afternoon. According to a report by the National Association of Realtors, the number of home sales contracts in the United States jumped sharply after quarantine measures were lifted in May this year. This indicates that buyers are returning to the market. Thus, the index of signed agreements on the sale of housing on the secondary market increased by 44.3% in May, amounting to 99.6 points. However, compared with the same period of the previous year, the index decreased by 5.1%.

Exchange Rates 30.06.2020 analysis

An increase in production activity within the area of the Dallas Fed was also observed. The report indicated that despite the recent surge in new coronavirus infections, activity continued to increase in the area. According to the data, the manufacturing index rose from -28.3 points in May to 13.6 points in June 2020, while the general business activity index rose to -6.1 points in June, from -49.2 points in May. Economists expected the index to be -25.0.

Meanwhile, the speeches of Fed representatives, including Fed Chairman Jerome Powell, were surprisingly different from each other. This indicates different assessments of economic prospects in the future. Mary Daly, president of San Francisco Fed said yesterday that labor market prospects are uncertain, and the danger to the economy associated with the coronavirus pandemic has not yet passed. She noted that the dynamics of the economy are in line with the expectations of a gradual recovery, but it is too early to judge whether the opening of the economy is premature. In turn, Fed Chairman Jerome Powell noted that the prospects for the US economy are extremely uncertain and the future of the economy depends on the actions of health authorities in response to the pandemic. It is pointless to expect that the economy will fully recover in the near future, as many people do not feel safe. However, Powell noted the recent business recovery reports amid lifting quarantine restrictions, and expressed hope that this process will continue.

As for the technical picture of the EUR/USD pair, the demand for risky assets will continue to lessen, and a breakout from the support level of 1.1230 will lead to another major wave of sell-offs which will return the quotes to last week's lows in the area of 1.1195. Its breakdown will easily push the trading instrument into the areas of 1.1170 and 1.1110, and only a bullish rebuff in the support level of 1.1195 or a consolidation above the resistance level of 1.1290 will push the quotes up to the highs of 1.1340 and 1.1420.

GBP/USD

The British pound also fell against the US dollar yesterday amid statements made by British Prime Minister Boris Johnson. In addition, the beginning of intensive EU-UK trade negotiations that started this Monday does not inspire confidence in a "bright future", as the two sides have not been able to achieve significant progress since the onset of the coronavirus pandemic.

Today, Boris Johnson is expected to present a plan to further stimulate the UK economy. However, it will not significantly affect the rate of the pound as only a progress in the Brexit negotiations will increase the currency. In addition, new fiscal measures may help boost the British economy, but so far the emphasis has been on whether the Bank of England will soften monetary policy and introduce negative interest rates this year, which puts pressure on the pound.

Johnson also spoke on the risks posed by the second wave of the coronavirus pandemic yesterday, saying that the economy survived the first wave rather hard, so in no case should a re-introduction of restrictive measures and the closure of the economy be allowed.

As for the technical picture of the GBP/USD pair, the pound has already reached the support level of 1.2250. A breakout from which will increase the pressure on the pair even more, which will lead to the update of the lows 1.2185 and 1.2120. A reversal will only occur if the quotes return to the resistance level 1.2320, and an update to the 1.2390 high will strengthen the correctional bullish mood.

Jakub Novak
Analytical expert of InstaForex
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