FX.co ★ The euro rejoice in the expectation of $1.16

On Thursday, the euro rose to a 7-week high, as Mario Draghi's rhetoric turned out to be less "dovish" than expected. On Friday, after a slight slide down, the quotes of the main pair rushed up again, and the speed was much stronger than the day before. The catalyst, as expected by the market, was a negative report on employment in the United States, which exerted significant pressure on the dollar. It is expected that by the end of the year, economic growth in the US will slow down, and the EUR/USD pair will rise above the mark of $ 1.16.

Note that a strong euro could be the next big risk for Europe's shares. Euro Stoxx components generate almost 60% of their revenue outside the block. If we pay attention to the level of purchasing power parity, which is now $1.37, then the euro is much lower than its equilibrium value.

In case of a deterioration of economic prospects in the United States, the Fed will go to the easing of monetary policy, as repeatedly hinted the other day by its representatives. The farther, the stronger becomes the belief of the market in reduced rates. However, not everyone shares the opinion of investors. For example, Fitch still believes that the US Central Bank will not reduce the rate in 2019, as the country's economy will continue to grow. Of course, investments are reduced due to trade wars, their fall is not so catastrophic as to provoke a recession in America, according to the Agency.

However, the Fed compared with the ECB can afford to lower rates.

As for the European regulator, it seems that it will follow the American path and resort to policy adjustment if the situation requires it. Well, now the Central Bank threw a lifeline in the eurozone in the form of a generous LTRO under -0.4%. Low rates will remain at least until the middle of next year.

So far, the ECB does not see the prerequisites for policy easing and remains "optimistic" about the future growth prospects of the economy. Draghi reported an increase in GDP and inflation forecasts for 2019 from 1.1% to 1.2% and from 1.2% to 1.3%, respectively. Of course, the uncertainty due to geopolitics and protectionism leaves its mark on business activity, but this problem is now faced by many countries of the world.

Reuters experts predict the growth of the main pair to $1.17 in 12 months. There is a nuance that can confirm the development of such a scenario. We are talking about the limited potential to reduce the yield of government bonds in Germany compared to analogs from the United States. It is expected that the rates on "ten-year" by the end of the year will fall to a historic low of 1.25%, while on German debt securities – from -0.24% to -0.4%.

The potential for a decline in the euro is limited, and if not for a new round of trade wars, the EUR/USD pair could be seen at higher levels. In favor of such a statement, the following indicators speak: the growth of German production orders, the improvement of external demand and exports of Germany – this is important for the recovery of the upward trend in the euro.

To continue the rally of the single currency, disappointing statistics on American employment in May are needed. In this case, there is already a check mark. Now, we are waiting for the preservation of market participants' faith in the de-escalation of the US-China conflict after the meeting of leaders at the G20 summit.