Last week, the ECB made it clear that its bond purchase program is to be the main tool for economic recovery, increasing the fund for the program by about € 600 billion euros. The program now costs € 1.35 trillion, exceeding investor’s expectations, and leading to the abrupt rise of the European currency.
Nevertheless, the excitement from the ECB’s decision will soon subside, but the demand for risky assets will continue, especially after such strong macroeconomic reports on the US economy, as it could also be the same in the eurozone.
The bullish trend still remains on the EUR / USD pair, but some of the macroeconomic reports published last Friday in Germany and the US led the dollar to rise a little bit.
According to a report published by Destatis, orders in the manufacturing sector of Germany fell by 25.8% in April this year, much lower than the forecasts of just about 19.1%. Compared to the same period last year, the index showed a decrease of about 36.6%. The drop was not only recorded in export orders, which fell by 28.1%, but also on domestic orders, which fell by 22.3% due to the quarantine restrictions and closure of many companies and enterprises. Today, the index on industrial production in Germany is to be published, which may also show a huge decrease in the indicators.
Meanwhile, the report on the US labor market, which was also published on Friday, surprised a lot of people, especially since the US economy is opening at a rather slow pace. Nevertheless, new jobs are likely to be created, and the labor market will soon recover. A lot will depend on how quickly demand will progress, the provision of which will attract new jobs and new workers. However, low income companies and high debt could hinder such recovery.
The report published by the US Department of Labor revealed that unemployment rate dropped to 13.3% in May, lower than the previous 14.7% recorded in April. New jobs also exceeded 2.5 million in May, which is a good sign for economic recovery. A deeper detail on the report reveals that part-time workers and those who do not actively search for work also fell to 21.2% in May, lower than the 22.8% a month earlier. Unfortunately, since the report reflects only the records for mid-May of this year, the current unrest in the US, which began after the murder of George Floyd by police in Minneapolis on May 25, may negatively affect the data for June this year.
Nevertheless, US President Donald Trump said that the resumption of economies led to the fall in unemployment, which suggests that the easing of quarantine restrictions was the right decision for the US economy. Donald Trump also expressed another round of criticism to China, saying that one should ask why Beijing has stopped the spread of the virus in China, but not to the other countries of the world.
Meanwhile, the purchase of treasury bonds by the Fed decreased, which suggests that the regulator not only fears an overheating of the economy, but fulfilled its promise that it will slow down the repurchase of debt obligations after the first signs of a recovery in economic activity . According to data, the Fed has acquired treasury bonds worth $ 22.5 billion last week, but this week will acquire only $ 20 billion.
Data on consumer lending in the US also came out last Friday, which revealed a sharp decrease in April this year due to a record decline in credit card use. The reason for which is the quarantine and isolation measures that were introduced because of the pandemic, so most likely, the indicator will quickly return to pre-crisis levels in June this year. Nevertheless, according to the report published by the US Fed, the total volume of consumer lending in April decreased by 19.6%, or $ 68.7 billion, while renewable loans collapsed by 64.9%.
As for the current technical picture of the EUR / USD pair, the bulls may be slightly weaker at the beginning of this week, but it will not result to a reversal in the trend. Bulls have to take hold of the resistance level 1.1340, as it could lead to a new wave of growth that may push the quotes to the area of the 14th and 15th figures. Meanwhile, a breakout from the support level of 1.1280 may lead to a corrective movement downwards, where the problems for the bears will begin in the level of 1.1195, as its breakdown will lead to a strong movement of the euro down to the area of 1.1085 and 1.0990.
GBP / USD
The British pound continues to update local highs, ignoring news and macroeconomic reports in the UK. Even the data on consumer confidence in the UK, which dropped sharply on May this year despite the easing of quarantine restrictions, had no effect on the market.
According to the report of the research company GfK, consumer confidence in the UK fell to -36 points in May, lower than the forecasted -30 points and the same as the crisis value reached in 2009. The bigger-than-expected drop was largely due to an increase in the number of applications for unemployment benefits and rather gloomy prospects on economic recovery. In addition, negotiations on a trade agreement between the UK and EU once again ended in nothing, which was revealed by EU chief negotiator Michel Barnier during a press conference. Nevertheless, the pound was steady on its rise, as many expect that concessions on both sides will begin closer to June 30, which is the deadline for the decision on the extension of the Brexit transition period.
Intervention of leaders, including British Prime Minister Boris Johnson, are expected to help build negotiations on trade agreements after Brexit.
As for the technical picture of the GBP/USD pair, a breakout from the resistance level of 1.2730 will push the pound upwards even further, which will be stopped only at new highs in the areas of 1.2800 and 1.2870. The market right now is quite overheated, and the bullish mood which started on May 25 sooner or later should be subjected to a more significant bearish correction. The nearest support levels are now in the areas of 1.2650 and 1.2580, but the nearest target of sellers is the level 1.2500.