FX special - Euro falling apart
|When you look at the Euro Dollar chart, it does make you wonder what is behind the move? Is the Euro going to fall apart? Is the Euro-parity finally on the cards again?
All those questions are valid, and as an investor or a trader, one should ask those questions, because the Euro-dollar has been in such a long trend since the start of this year.
At the beginning of this month, the EUR/USD was trading at 1.1084, and so far, it has dropped 2.35% approx. The last trading price was 1.0835.
Speculators have drawn too much blood out of this trade, and the currency pair has touched the lowest point since April 2017. Let’s dwell further on the reasons behind the current move, and see if it makes sense, after all, the move has been mammoth.
Here are the key reasons why the move has been so intense:
The European Central Bank’s new president, Christine Laggard, has defended the case for lower interest rates and, she has left the door wide open for more stimulus if there is any need for such. As long as the ECB is willing to push the interest rate curve lower, traders are ready to beat the EZ’s currency more against the dollar, because the Federal Reserve hasn’t shown any reason why they should cut the interest rates. Let’s just say that Trump’s prayers have not produced any fruit. This makes the Euro even more vulnerable for it is trading against a currency that is supported by a hawkish monetary policy stance.
If we start focusing on the Eurozone’s economic data, it has taken a turn for the worse. The economic engine of the Eurozone, Germany, isn’t providing any support. This has tumbled the Eurozone’s industrial production number.
Another important reason for the sell-off in the EUR/USD pair is that the dollar is also considered as a safe haven currency, and the on-going virus outbreak has increased its attraction. On the other hand, the lower interest rate on the Euro makes it more attractive as a funding currency. Hence, the selling pressure on the Euro is twofold.
In terms of the economic calendar, we have the German Prelim GDP q/q reading due at 07:00 GMT and, it is expected to stay at 0.1%. If we see the German GDP number showing any weakness — a highly likely scenario — because of the Coronavirus’s influence, it could push the Euro even lower against the dollar today. The dwindling German economy means the shrinking Eurozone’s economy.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.