Euro Forecast: Outlook for EUR/USD Negative on Second Wave Fears

Source: IG Charts

FUNDAMENTAL EURO FORECAST: BEARISH

• A second wave of Covid-19 cases in countries such as China and the US that have eased lockdown restrictions will likely keep investors cautious in the week ahead.
• That could damage the Euro and other “risk on” currencies against safe havens such as the US Dollar and the Japanese Yen.
• On the data front, “flash” PMI data for June will likely point to only a modest Eurozone economic recovery this month.

EURO PRICE IN DANGER OF FALLING FURTHER

If China and the US prove typical, countries that ease the lockdown restrictions in place to protect their citizens from the coronavirus pandemic can expect in increase in infections, and that will likely keep investors cautious in the coming week.

There had been hopes that a solid economic recovery was on the way but that now seems in doubt, and the chances are that investors will again opt for safe havens like the US Dollar and the Japanese Yen rather than the Euro, the British Pound or the Australian Dollar.

Adding to the overall gloom, geopolitical concerns also seem to be spreading, with China and India facing off at their border, and North Korea and South Korea arguing again. In fact, the only good news seems to be optimism about a drug to help save the lives of coronavirus patients and the continued willingness of the world’s central banks to flood the banking system with money.

This has already begun to take its toll on EUR/USD, which is now well down from the high above 1.14 reached earlier this month, and further losses from here would be no surprise.

EUR/USD PRICE CHART, DAILY TIMEFRAME (FEBRUARY 18 – JUNE 18, 2020)

Chart by IG (You can click on it for a larger image)

WEEK AHEAD: PMIS AND IFO

There are few major data releases from the Eurozone in the week ahead but the figures that are published could be important. Tuesday sees a batch of June purchasing managers’ indexes released and the consensus is that the numbers from France, Germany and the Eurozone as a whole will all show improvements from May in both the manufacturing and services sectors.

All are expected to remain below the 50 level separating expansion from contraction but at least they look to be moving in the right direction. Similarly, the Ifo business climate index for Germany in June and the German GfK consumer confidence index will likely be higher than the month before, though still signaling a very weak economy.

Reprinted from DailyFX，the copyright all reserved by the original author.