Everyone has been loving the Euro recently.
The Euro currently sits at a 26 month high at around 1.19 against the U.S. Dollar. Now, it is up almost 12% from its March lows. Everything recently has been compared to how well the Coronavirus response has been in respect of said asset, and the Euro is no exception. The appreciation in the Euro against the U.S. dollar is in a combination of an increase in investor/trader interest in the Euro, alongside the broad weakening of the U.S. dollar.
The U.S. Dollar has weakened from its “safe haven” all-time high earlier in March. This is due to investors and traders looking for markets elsewhere in the world, alongside being wary of the conditions in the United States. They recorded just under 38,000 new Coronaviruses cases today, with over 5.47 million previously registered Coronavirus cases. Therefore, comparatively, the consensus is that Europe has had a better response to the Coronavirus than the United States. With both continents pushing out trillion-dollar stimulus packages, the difference is the cohesion between the politicians that run the government. The United States government have seen a divide across the aisle on how to proceed with the Coronavirus, while the members of the European state has been relatively United.
Regarded as the second world currency, the Euro has taken the front foot on the decline of the U.S. Dollar. Figures from the CTFC collated by the Financial Times show that optimism in the Euro stands at a record high, with net non-commercial positions standing at the highest it has ever been. Furthermore, JP Morgan raised their year-end target forecast for the Euro at 1.20, from a previous estimate of 1.13 against the dollar.
Jane Foley, head of currency strategy at Rabobank in London, suggested that “the CFTC positioning data suggests that the move in the Euro is overstretched,” suggesting a correction may be in place to move higher.
The currency market has been in contrast to how the equity markets have been playing out today. With a further pullback in the U.S. dollar index, down 1.35% over the past five days, the S&P 500 and the NASDAQ closed at all-time highs.
EUR/USD locks in a 4th straight day of gains on tailwinds regarding European stimulus and vaccine tailwinds. The EUR/USD sits at around the 1.1428 level, hitting a healthy resistance level as bulls ride risk on optimism.
Many European countries such as Italy, Spain, and Germany have had an effective lockdown, squashing Coronavirus cases and giving Europe a general sense of control over the virus. However, it is far from over as Germany's Angela Merkel and Italy's Giuseppe Conte fight other member states to show collective solidarity on the Coronavirus recovery fund. However, Merkel points out that it may not be enough, stating that "I don't know whether one will be enough or whatever," and they "[they] will need to meet a second time before the end of summer." This is on the back of the UK and Italy, breaking 100% and 150% Debt to GDP ratios
Modern's vaccine trials showing positive results provided a boost to risk assets and, inherently, weaken the dollar haven, strengthening currencies such as the Euro and the Aussie dollar. Dr. Penny Heaton, Chief Executive of the Bill and Melinda Gates medical research institute, stated that the results of the most recent peer-reviewed study "are promising, and they support the continued development of the vaccine." However, she also said that "However, we must bear in mind the complexity of vaccine development and the work still to be done before Covid-19 vaccines are widely available."
Citibank's analysts predict a large jump to 1.14 in the three-month range and 1.17 in the six to twelve-month scale. However, the currency pair is currently hitting a historically strong resistance, which may see the Euro push lower if there is no further positive news regarding the recovery fund or the vaccine.
Anish Lal, a Senior Analyst here at Blackbull Markets did some brilliant technical analysis on the EUR/USD. You can watch it here.
Markets brace for the week ahead as the Coronavirus continues to disrupt the world order. As the death toll has topped 300,000 worldwide, markets have shown a tentative appetite towards risk-on assets. Oil is up 7.45% the past week, with the S&P 500 down 1.58%. Gold is up 2.3%.
As Japanese residence defying lockdown rules, analysts predict a 4.6% contraction in annualized GDP growth. The government issued a $1.1 trillion fiscal stimulus package in early April, which including lowered interest rates and asset purchases. This stimulus package represents 21% of their GDP. in With an aging population and a slowing pre-coronavirus GDP growth rate, investors and traders will be looking for any positive sentiment in the report today to bolster the JPY as a safe-haven currency.
A key event to watch for traders and investors, as sentiment from the FED chairman Jerome Powell this week may affect the dollar significantly. However, he has been quite vocal in the strength in the American economy. "In the long run and even in the medium run, you wouldn't want to bet against the American economy. The American economy will recover". However, he also voiced his doubts concerns, stating that "for the economy to recover.. that may have to await the arrival of a vaccine." This is on the back of President Donald Trump stating that the Fed chair was his "Most Improved player." The Fed has implemented deep cuts to the Fed funding rate, and a unlimited quantitative easing scheme extending to bond ETFs.
The United Kingdom has one of the highest Coronavrius fatality rates in the world, currently sitting at aorund 14.3%. The government has pledged a fiscal package totaling $520 Billion, $50 Billion of which going towards employment relief. Analysts predict a 65,000 decrease in the number of people employed. This comes a day before the United Kingdom releases its Core Inflation Rate. With people being locked in their own homes, analysts predict a drop in the rate of inflation this week to 0.8%, down from 1.5% a month before.
With one of the countries not implementing a strict lockdown, Canada has done relatively well. Alongside the government's quick actions and Canadian residence adhering to a self-imposed lockdown, currently their fatality rate stands at 7.5%. Similarly to the UK, analysts predict a slight drop in the rate of inflation to -.1%, down from 0.9% a month before.