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The issue of the V-shaped economic recovery is still widely discussed and attracts attention of most market participants. Investors are ignoring a flow of weak economic data from some countries. They suppose that the economic conditions will improve in the next few months.
Analysts foresee that the Chinese economy will accelerate its growth pace in the near future thus becoming the leading economy in the world. Of course, the US is concerned about such a possibility. However, at the moment, the country is facing racial problems that could balloon into in a more severe standoff, which may trigger serious political and economic troubles.
Such a scenario may lead to significant changes in the global market situation and currency exchange rates in the forex market. Donald Trump has only threatened to impose various sanctions on China and punish it using other measures. However, he will hardly decide to come into a serious conflict. That is why investors have switched to the issue of the v-shaped economic recovery. According to this scenario, demand for risk assets (first of all, for companies' shares) will go on rising. Besides, prices on oil and commodity assets used in production will climb. Of course, the US dollar is expected to lose ground.
On Friday, the US published unexpectedly strong data on its labor market. In May, the US economy added 2.509 million new jobs. Economists had forecast a drop by 7.5 million. At the same time, the unemployment rate also declined to 13.3% from 14.7%. The data is above the forecast of 19.7%. The average length of the working week rose to 34.7 hours from 34.2 hours. Economists had expected an increase to 34.3 hours.
Amid the news, the US dollar advanced against the euro, the yen, and the Swiss franc. However, it failed to recoup against the commodity currencies and the British pound. We suppose that the current dynamic of the greenback against the Australian dollar, the New Zealand dollar, the Canadian dollar, the Norwegian krone, and the Russian ruble will remain the same. This could be explained by a mounting investors' interest to risk assets amid higher prices on oil and industrial metals triggered by hopes for a faster global economic recovery.
The euro is likely to go on gaining in value after a small drop amid strong data on the US labor market and ECB's meeting. We still suppose that the US dollar will be weaker because of the massive stimulus measures imposed by the Fed and the US Treasury Department. It may even continue after the ECB's and EU authorities' decision to largely extend the quantitate easing program.
The British pound's rise is likely to be capped by the problems caused by Brexit and the coronavirus consequences. GBP/USD and EUR/USD may move in the same way. However, the uptrend will prevail in the next few months.
This week, the currency market dynamic will depend on the Fed's meeting results and Mr. Powell's rhetoric. Extremely soft economic policy could affect the US dollar and lead to a mounting demand for risk assets and the US dollar weakening.
Outlook for EUR/USD and AUD/USD on June 8th:
The euro/dollar pair is trading above 1.1280. There is a great possibility of the 38% Fibonacci retracement ahead of a rise to 1.1450 and 1.1500. Local overbought and expectations of the Fed's meeting results may trigger the above-mentioned situation.
AUD/USD also jumped amid positive market sentiment. However, it may drop to 0.6875 (23% Fibonacci retracement), if it declines below 0.6955.
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