February 14, 2020

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 EURO/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.