EUR/USD: Three reasons to extend the decline

EUR/USD’s upward path may be in jeopardy, at least for now, as the currency pair has three reasons (curbing Chinese enthusiasm, weaker eurozone figures and concerns about US coronavirus cases) to extend its downward correction, according to FXStreet’s analyst Yohay Elam. 

Key quotes

“Monday’s primary market drive came from China – where state media touted a bullish stock market to follow up the recovery. Trading volumes hit the highest since 2015 – but that year’s rally eventually ended in a burst bubble. Perhaps aware of the dangers of pumping up valuations, all four of China’s major state-owned financial outlets called for investors and speculators to be rational – weighing on stocks. That is allowing the dollar to recover.” 

“Germany’s economy is rebounding – but less than expected. Industrial output rose by 7.8% in May, weaker than expected. Tuesday’s publication follows Monday’s disappointing Factory Orders figure which advanced by only 10.4%. While these increases are massive in absolute terms, they follow plunges in April and March. The Sentix Investor Confidence also recovered to -18.2 points, but that still reflects deep pessimism.” 

“US investors clung onto encouraging US COVID-19 statistics, showing fewer than 50,000 new cases and a drop in deaths below 300. However, it is essential to note that reports coming out on Monday suffer from the ‘weekend effect’. The past weekend has been longer and administrative work may be catching up on Tuesday. Reports from Florida, California, and Texas may dampen the mood and boost the greenback.”