2nd June 2019 - The bullish sentiment is weighing on USD, while EUR is waiting for the ECB

Walid Salah Eldin

Active member
The US equities indexes are still rising unfazed of the unrest over George Floyd's death. it is good sign about the current recovery resilience and the believe in the economy ability to get over corona virus crisis.

The improving of the risk appetite could push the investors away from the greenback and the Japanese yen boosting demand for EUR and GBP, after The equities started the week undeterred by these riots which extended nearly to all US cities following the incident of George Floyd killing by a white police man. From another side, the oil prices rebounding could also give a boost to the equities market and the believe in an economic recovery to come sooner than later, however the oil prices bouncing currently is basing mainly on OPEC+ cuts which can be extended for longer period of time, while the demand for energy is recovering cautiously.

While The regularly PMI manufacturing data which release in the beginning of each month have shown improving in the May in all of the G7 countries sometimes better than expected like China and the services sectors data of these nations are also expected to show improving tomorrow.

While the markets main concern is still about corona virus second wave infection can gather momentum by these current demonstrations in US which reached Europe too.

The virus stance in Europe is much different. The complete curfew held for more than 8 weeks not for barely 3 weeks as the stance in US. and now all cases nearly appeared in EU and the health sector could deal with them by the possible means and thus as long as there is no cases among us at home, there will be no cases among us in the street.

The EU economy started to open step by step, but it needs to be isolated for considerable period of time to slow the next waves and not repeat the scenario of the first wave which can be followed by other lower highs waves, till a social immunity can be reached within nearly 2 years, if there is no effective medicine or vaccine to come to end this nightmare.

The markets will be next Thursday for the ECB governing council members meeting with higher hope for further easing action can be by expanding its QE program or Pandemic Emergency Purchase Program (PEPP), despite The German court ruling judgment to cap ECB QE plans which have been granted previously in Dec 2018 by the ECJ (European Court of Justice) the ECB to buy governmental issued bonds.

The ECB president Christine Lagarde assured last meeting on that the bank is ready to take more steps to support the economy in the same time she stressed on the financial policies role as she used to.

The ECB president Christine Lagarde said recently that she no longer believes in mild slowdown and we are between the medium and severe scenarios expecting the economy to shrink by stronger rate than the financial crisis which hit the world in 2008.

Actually, This crisis and also previous credit crisis in 2008 have highlighted the big difference between the US ability to response and the EU ability which very lagged behind US which could enter tightening cycle in 2017 and 2018 before starting easing back, while the ECB is still tied standing still unable to even follow the FED which is really working along with the government to give the needed support to the economy.

Even before this current sparked crisis by Covid-19, the US economy could got boosts by several reflation plans worth more than USD1.5tr and has been actually waiting for more financial stimulus plan to come following the US presidential elections.

In response to the crisis, the Fed's balance sheet expanded by about USD2.3tr until now reaching USD7.037tr, while the US government could initially mull a stimulus plan worth $1.2tr and is expected to be expanded to more than USD3tr next to revive the economy.

While EU is still struggling to implement the hardly reached agreement by the EU commission to prop up the economy by €750b package backed by Germany and France against the Frugal objecting Four "Sweden, Austria, Netherlands and Denmark".

After forming a higher low at 1.0870, EURUSD could be able to surpass the psychological 1.10 level and gather higher momentum to reach 1.1195 today.

After forming this higher low at 1.0870, EURUSD could come over its daily SMA50, its daily SMA100 and also its daily SMA200.

EURUSD is now in its tenth consecutive day of being above its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 1.0905.

The daily chart shows that EURUSD RSI-14 is referring now to existence inside the overbought region above 70 reading 70.012.

EURUSD daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now also its main line inside the overbought territory above 80 at 89.249 leading to the upside its signal line which is lower inside the same area at 88.940, after positive crossover inside the neutral region, following forming a higher low at 1.0870.

Important levels: Daily SMA50 @ 1.0911, Daily SMA100 @ 1.0957 and Daily SMA200 @ 1.1010

Experienced S&R:

S1: 1.0870

S2: 1.0726

S3: 1.0634

R1: 1.1195

R2: 1.1236

R3: 1.1366

Kind Regards

Global Market Strategist of FX-Recommends

Walid Salah El Din


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