The euro-dollar pair came close to the 12th figure today, updating almost three-month price highs. The last time the pair was in this price area was in mid-March, on the way to the annual low of 1.0653. Today, buyers are clearly dominant - with slight downward pullbacks, the pair has been growing for a week, rising from the support level of 1.0880 to the current local high of 1.1195. And if the price strengthened last week mainly due to the euro's growth and the vulnerability of the dollar, now the upward price dynamics is only a result of the devaluation of the US currency. On the contrary, European events act as a kind of anchor, not allowing the bulls to momentarily break through the resistance level of 1.1200. However, first things first.
The riots in the U.S. at first did not bother investors, as they did not bode anything extraordinary- unfortunately, incidents like Minneapolis occur in the country with a certain regularity, and, as a rule, retaliatory protests are local and short-lived. However, current events have gone beyond the expected scenario, gaining completely different perspectives - especially in the light of the coronavirus pandemic. At the moment, curfews have been imposed in nearly 80 cities in the United States, while protests in one form or another are taking place in all major cities. In 15 states, National Guard forces came to the rescue of local authorities, and the number of detainees is in the thousands (totaling about 4,400 people across the country). To many, the current situation resembles the year 1968, when Martin Luther King was killed. According to journalists, then there was also an epidemic and there were also mass protests. Indeed, the scale is incomparable (especially with regard to the epidemiological situation), so some experts predict the worst summer for the United States since the Great Depression.
Donald Trump added fuel to the fire, who in his usual manner declared that he could use the army to suppress riots. This initiative was criticized by many governors (mainly from the pool of Democrats) and, of course, by Joe Biden. Trump's future rival in the presidential election warned that the head of the White House cannot, by his sole decision, direct the army against his own people. The fact is that according to the law "Posse Comitatus Act", which was adopted in 1878, the armed forces cannot operate inside the country without the permission of Congress. Trump, in turn, threatens to use the law "Insurrection Act" (it was adopted even earlier, in 1807), which has never been applied in the United States.
However, traders are worried not so much about the riots amidst the political crisis, as the risk of a second wave of the epidemic. There can be no talk of any social distance at such rallies, while thousands and tens of thousands of Americans are involved in these events. Possible prospects emerge by themselves: a re-outbreak, a new lockdown, rising unemployment, a further slowdown in the economy, and a protracted recession. Such a scenario looks very realistic and quite frightening against the background of recently published macroeconomic reports. That is why the dollar is now so responsive to the news flow regarding the dynamics of the protest movement. After all, do not forget that the United States is still leading in the number of infected and dead from coronavirus. According to the latest data, COVID-19 was confirmed in 1,837,170 people over there. Nevertheless, after the country reached the so-called "plateau", almost all regions decided to weaken the quarantine, thereby launching the country's economy. If protests are followed by an outbreak of disease, Americans will have to return to the "zero point".
The euro also has its own problems. The political conflict in Europe, although less noticeable in the information space, nevertheless carries a potential risk for the growth prospects of EUR/USD. We are talking about the notorious anti-crisis plan of the European Commission. The proposed plan provides that the affected EU countries will receive 500 billion euros in subsidies, and 250 billion in loans. However, Austria officially opposed the initiative yesterday. According to the Minister of Finance Gernot Blumel, Vienna will not approve the proposed plan, as it is "a heavy burden for Austrian taxpayers." Earlier, a similar position was voiced by the representatives of the Netherlands, Sweden and Denmark. They reacted somewhat more softly to the Ursula plan, calling Brussels' initiative "the starting point for negotiations."
As you know, according to the procedure, this plan should be considered by all member states of the European Union and express their opinion at the corresponding summit (according to some forecasts, such a summit may take place at the end of July). But even if the program is approved in principle, another procedural step is needed for its implementation: it is necessary to increase the "ceiling" (that is, the upper limit) of the EU's own resources. And for this, ratification of the national legislative bodies of the EU countries is needed. In other words, the proposed program should go through the millstone of the parliaments of all 27 member states of the EU.
In other words, if Austria continues to show integrity in this matter, then the European currency will become an anchor for the EUR/USD pair, at least slowing down the price increase. However, this threat is still potential in nature: such heavyweights like Germany and France are allies of Brussels, so Austria's position does not bother EUR/USD traders. At least at the moment there is general confidence in the market that Vienna will be able to convince - perhaps with the help of some compromises regarding the amount of mandatory payments.
Thus, the rebellion in America is still the number one topic for the pair's traders. Mass riots could potentially have widespread and extremely negative economic consequences for the country. Therefore, if the situation on this front is aggravated, the dollar will continue to plunge. And vice versa - if the authorities manage to repay the wave of protests, a correction will follow for the pair, especially considering the proximity of the June meeting of the European Central Bank (Thursday, June 4).
From a technical point of view, the pair maintains its growth potential - on the daily chart, the pair is located on the upper line of the Bollinger Bands indicator and above all the lines of the Ichimoku indicator. On the weekly chart, the price is located in the Kumo cloud, and the closest growth target is the upper border of this cloud - the 1.1225 mark. The next resistance level is the upper Bollinger Bands line at W1 and the price is 1.1260.