Europe's COVID-19 plight and prospects for the EUR/USD

The COVID-19 health crisis has been a historic shock for a fragile eurozone economy and banking system. 

The weakness of individual nation-economies, such as the Italian economy, has been a long-standing theme in markets and problematic for the euro and European politics. 

In recent trade, there are updates as to just how seriously bad the COVID surge of new cases is for various countries in Europe. 

Today marks the day that sees Spain as the first European country to record a million coronavirus cases.

The most concerning of that statistic is the doubling on that number on just six weeks. 

Yesterday alone, the nation reported 38,000 new cases in a single day

It has also recorded 575 deaths over the past week, bringing the official number of coronavirus deaths to 34,366.

Several Spanish regions had already toughened their coronavirus restrictions on Monday, seeking to curb the second wave of the contagion.

“We are in circumstances similar to those of March or April,” Burgos Mayor Daniel de la Rosa told state broadcaster TVE, recalling the start of the epidemic when Spaniards were confined to their homes to stop the spread.

Earlier this month, the central government was declaring a state of emergency in Madrid to reimpose a partial lockdown on several million people in and around the capital.

The government is now considering introducing a nighttime curfew across the whole of the country, Health Minister Salvador Illa said on Tuesday. 

Meanwhile, neighbouring France has nearly 931,000 cases and could also surpass 1 million soon.

Alarmingly, Italy's cases have shot up in a very step curve since the end of September. 

The data is from yesterday but there have been 15,199 new cases reported vs 10,870+ yesterday, which is quite a jump and enough for markets to increase their negative bets on the eurozone economy and asset classes. 

Regardless, however, the euro has galloped to reach a month high to 1.1880 as the US dollar falls out of bed based on stimulus hopes. 

However, technically, the outlook for the euro does not look so rosy and nor does the situation of the spread of the virus, for not only the economy but European politics. 

Investors found reassurance both in the ECB’s commitment to ease and in the EU’s Recovery Fund.

This sparked hopes that European politicians were finally making small steps towards a more harmonious fiscal arrangement. 

However, heavily long positioned CFTC data in EUR positions coupled with the second wave of covid-19 could all come crashing down for the single currency.

Fresh demands for fiscal funds could trigger fresh debates about fiscal support and that is where the euro bull could come unstuck.

Against this backdrop, ECB officials have not been quiet about their dovish outlooks, preparing the market for more monetary policy action in the coming months.

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