EUR/USD: Room for further gains, albeit with a temporary retreat

The rapid pace of gains experienced by the EUR/USD pair, which is trading above 1.12, suggests a temporary correction may be on the cards, according to FXStreet’s analyst Yohay Elam.

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Key quotes 

“One potential trigger for a correction may come from fraught talks between Germany's coalition partners. Angela Merkel's CDU party has so far failed to agree on the details of a €100 billion stimulus package with her center-left SPD. If another meeting is also inconclusive the common currency could fall. However, previous prolonged negotiations eventually ended in an agreement.” 

“Investors are growingly bullish on stimulus from the ECB. The Frankfurt-based institution is forecast to expand its Pandemic Emergency Purchase Program (PEPP) which currently stands at €750 billion. Estimates from an additional €250 billion to €500 billion.” 

“Germany's Reproduction indicator dropped below 1 after temporarily moving above this level and cafes in Paris are reopening. Overall, coronavirus seems to be coming under control, supporting the common currency.” 

“The mass gatherings in demonstrations and other reopenings that have come amid political pressure and without substantial falls in cases suggest the US is still at risk of experiencing a second wave. However, that may take time to materialize and investors remain optimistic about the return to normal.” 

“Two significant releases await investors. ADP's private-sector jobs report is forecast to show a loss of nine million jobs in May – a horrible outcome, but an improvement in comparison to Apri while the ISM Non-Manufacturing PMI also carries expectations for improvement, yet it will likely remain below 50 – representing concentration.”