The Euro only continues to drop lower and lower. When we looked at the EUR/USD pair on the 7th, it was at a 4-month low. When we revisited it just under a week ago, it had managed to hit a low not reached since April 2017. And now the Euro has dropped further still, sinking below the 1.0800 mark. It seemed to recover slightly, but has now dropped back down, leading to a 34-month low.
We predicted that the popularity of the Euro and Dollar pair amongst carry traders could cause the Euro to drop further, and it appears to have become a reality.
However, there appear to be new factors affecting this fresh low, including the German ZEW survey which was released. Standing for Zentrum für Europäische Wirtschaftsforschung, which translates to Center for European Economic Research, the ZEW indicator is a monthly release which measures the economic sentiment regarding Germany from approximately 350 economists and analysts.
Simply put, the it measures the number of analysts which predict a bullish vs bearish economy for Germany in the next 6 months, and then translates that to a number.
February’s ZEW had the Economic Sentiment Index drop to 8.7, vs the 21.5 that was predicted before the release, and far below the 26.7 of the last release.
ZEW President Professor Achim Wambach attributed this extremely low figure to the impact of the coronavirus, which has now passed 2,000 deaths.
As the Euro continues to drop, Gold continues to trend in the opposite direction. The classic safe haven asset is thriving in a global economy currently filled with uncertainties and global risks. Throughout the day it managed to rocket past the 1,590 mark all the way to 1,605, undoubtedly also fuelled by continuing fears of the coronavirus. Despite the number of cases and deaths reported starting to lessen, the WHO warns that there is not yet enough information to say if the epidemic has actually slowed down.
The question now is whether the Euro has the potential to continue this bearish trend and drop even further. This is what Anish Lal at BlackBull Markets had to say:
“Euro shorts triggered all the way until sub 1.08s with bears weighing in heavy on this trade. With positive carry and negative yields, there is no incentive to hold the Euro for investors at present, especially as recent poor data prints continue to provide stimulus for more sells. The EUR/USD has now covered a key gap formed in April 17 and this could either hold as support, or we could likely see a trend continuation. The 1.08 is a key level to watch. Meanwhile, Gold pushes higher, aiming to smash through new yearly highs past $1,611 with eyes on global risks. Despite equities being stable, markets also have an election to look forward to, which could make investors more risk averse - and resulting in a higher Gold for 2020.”