When youlook 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 thosequestions 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 thisyear.
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.
Speculatorshave drawn too much blood out of this trade and the currency pair has touchedthe lowest point since April 2017. Let’s dwell further on the reasons behindthe current move, and see if it makes sense, after all, the move has beenmammoth.
Here arethe 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 startfocusing 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. Thishas tumbled the Eurozone’s industrial production number.
Anotherimportant reason for the sell-off in the EUR/USD pair is that the dollar isalso considered as a safe haven currency, and the on-going virus outbreak hasincreased its attraction. On the other hand, the lower interest rate on theEuro makes it more attractive as a funding currency. Hence, the sellingpressure 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.