28.05.202016:21 Forex Analysis & Reviews: EURUSD: China is threatening retaliatory US sanctions. Sentiment in the Eurozone economy is improving, allowing the euro to maintain its bullish momentum

While buyers of risky assets are trying to enlist the support of new major players, the Chinese authorities responded aggressively to yesterday's statement by US Secretary of State Mike Pompeo.

Let me remind you that we are talking about sanctions and Hong Kong's autonomy. Secretary of State Mike Pompeo has already said that any Chinese decision that affects the autonomy and freedoms of Hong Kong will lead to a review of Washington's relations with China. Anti-government protests and demonstrations have already taken place in Hong Kong, which was dispersed by police officers. More than 180 people were detained. The main protest of people was related to the project on national security, which is being considered in the Chinese Parliament. Already today, the office of the Chinese Foreign Ministry has spread information that if sanctions are applied against China or officials, the US will receive an indispensable rebuff and decisive countermeasures. Also, the Foreign Ministry reminded that they would not allow US interference in the affairs of Hong Kong, which is part of China, therefore all issues related to it are related to the internal affairs of the PRC.

Meanwhile, the reports that were published today on the economy of the Eurozone once again reminded traders of what difficult times are waiting for the bloc. The European Commission report said that a number of companies in the manufacturing sector of the Eurozone in May this year were slightly less pessimistic about their own prospects, although the main problems associated with the coronavirus and paralysis of the economy remained. Negative sentiment in the service sector has only increased.

Despite the lifting of some restrictions that were imposed due to the coronavirus pandemic, the Eurozone industry confidence index rose slightly in May this year to -27.5 points against -32.5 points in April and was forecast at -27.0 points. As for the service sector, the situation has only worsened. There, the confidence index in May collapsed immediately to -43.6 points against -38.6 points in May. If we take the consumer confidence indicator separately, it has increased slightly, although it remained at a rather pessimistic level. According to data, the consumer confidence index in the Eurozone in May this year was -18.8 points, fully coinciding with the forecasts of economists, against -22.0 points in April.

Overall, the indicator of sentiment in the Eurozone economy rose to 67.5 points in May after a sharp decline to 64.9 points in April. The mood improved particularly quickly in Germany and Spain, while in France the indicator fell to a new record low.

The German inflation report, although preliminary, did not greatly please market participants, as well as economists who are afraid of increasing deflationary pressure during the coronavirus pandemic. According to the statistics agency, the preliminary consumer price index (CPI) in Germany in May fell by -0.1%, while it grew by only 0.6% year-on-year, which, as you can understand, is far from the target level of the European Central Bank in the region of 2.0%. The data completely coincided with the expectations of economists. The EU-harmonized German consumer price index remained unchanged in May and rose only 0.5% per annum, with a forecast reduction of -0.2% compared to April.

A sharp slowdown in demand due to the pandemic, a shrinking labor market, and low economic activity, along with a collapse in energy prices, were the main problems that caused inflation to show a decline.

Today's report on retail sales in Spain did not scare traders much. According to the data, against the background of strict quarantine measures in April this year compared to March, sales decreased by 20.4% after a decrease of 15.5% in March.

As for the technical picture of the EURUSD pair, it has not changed much compared to the morning forecast. Bulls are still trying to break above the resistance of 1.1030, as only a break in this range will lead to a larger increase in risk assets with the possibility of updating the highs in the area of 1.1090 and 1.1140. Let me remind you that buyers of risky assets actively returned to the game yesterday after the news that the European Commission agreed to provide non-refundable loans to EU countries in need of assistance in the amount of 500 billion euros. We are talking about so-called grants, for which funds will be allocated. Another 250 billion will be issued under credit lines. You can read more about this in my morning forecast. If the pressure on the euro returns, then large support levels will be seen in the area of 1.0960 and 1.0870.