- EUR/USD has enjoyed a recovery in the last hours of May, thanks to end-of-month flows.
- That may change in early June, as traders return.
- There are three reasons why it can fall early in the week.
1) Morgan Stanley warns
Morgan Stanley, the influential American bank, said that there is a risk of a recession within the next year if trade wars get any worse. And not only MS enjoys influence -- the news is highlighted on Bloomberg -- which has a substantial influence on markets. A risk-averse atmosphere usually favors the USD over almost all currencies with the yen being the only exception.
MS joins additional banks that have already made downgrades to their assessments, but their words are the starkest so far.
2) China remains defiant
And trade wars intensify and perhaps get worse. Chinese officials have held a special press conference over the weekend, publishing a white paper that details their approach on trade. The short message is clear -- defiance. The world's second-largest economy said that trade wars have "not made America great", hitting back at Trump's elections slogan.
Beijing also says that unreasonable US demands have led to the collapse in talks. They say that when the US offers an inch, they take a yard. There are no signs that China is backing down.
3) The German government on the verge of collapse
Andrea Nahles, the leader of the center-left SPD, has quit. She was a key figure in the fragile CDU-SPD government led by Angela Merkel. Nahles cited the party's poor results in the European elections.
Voters are unhappy with the SPD's participation in Merkel's CDU coalition and voted for the green party. In turn, the chancellor said she will not run again in the next elections and her successor at the party, Annegret Kramp-Karrenbauer, is seen as immature for the job.
New elections in Europe's largest economy mean more political instability.
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