- EUR/USD could be on the verge of a bigger drop as Eurozone stands divided on coronabonds.
- A severe shock to Eurozone's growth could undermine the structure of the shared currency.
EUR/USD is lacking a clear directional bias on Monday, having faced rejection at a crucial resistance on Friday.
The currency pair is currently sidelined near 1.0860. The spot jumped 0.31% on Friday but failed to retake the trendline rising from March 23 and April 6 highs. At press time, the trendline resistance is located at 1.0897, which is also housing the 10-day average
Risks skewed to the downside
Analysts at JP Morgan have revised lower their one-year EUR/USD forecast to 1.06 from 1.08, citing the possibility that "the shock to growth and debt levels could, if sufficiently severe and without debt mutualization, undermine the very structure of the currency itself.
Meanwhile, BK Asset Management's Kathy Lien is of the opinion that investors perceive the outlook for the rest of the world to be worse and would continue to buy US dollars. "This is one of the reasons why euro could test its 3 year low of 1.0636 versus the US dollar.," Lien said.
Moreover, the coronavirus outbreak has brought to the fore the deep divides among the member states on fiscal spending. Italy and Spain have accused northern nations - led by Germany and the Netherlands - of not doing enough, according to BBC news.
While, Italy, Spain, France, and few other nations want debt mutualization via coronabonds, Germany and the Netherlands are not buying the idea of community debt needed to contain the economic fallout from the virus outbreak.
As such, most analysts think risks are skewed to the downside.
As for Monday, the pair is likely to trade in line with the broader market sentiment, as the data calendar is light with no first-tier releases scheduled for release in the Eurozone and the US.
Technical levels
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