As in the case of re-marriage, the EUR / USD rally at the end of the week by April 24 turned out to be a triumph of Hope over Experience. Fans of the euro are seriously counting on a compromise on the issue of financing and using the resources of the € 1 trillion Rescue Fund, on expanding the list of assets for the European QE, and buyers of American stocks on the gradual opening of the US economy and on coronavirus vaccines. The growth of stock indices allowed the main currency pair to return above the base of the 8th figure.
According to Bloomberg research, Eurozone GDP will sag at 8% at best in 2020. If the Old World covers the second wave of a pandemic, the recession will increase to 10%. The worst option would be the lack of compromise between eurozone countries on fiscal stimulus issues. In this situation, the ECB will remain one player in the city and is unlikely to cope with the disaster.
The dynamics of the European economy
Action needs to be taken quickly and decisively, and 27% of Bloomberg experts expect Christine Lagarde and her colleagues to decide to scale up QE as early as April 30th. Most economists predict that the European Central Bank will officially announce the purchase of bonds of the "fallen angel" - securities whose rating is about to be lowered to the "junk" level. By the way, Standard & Poor's reluctance to downgrade Italy extended a helping hand to the bulls on the euro. The agency said that Rome can afford additional loans, as the ECB will buy them anyway.
The meeting of the European Central Bank seems to be a much more interesting event than the FOMC meeting. Most likely, the Fed will confine itself to a statement of readiness to do more if necessary. The expansion of the ECB's balance sheet along with the growing risks of fragmentation of the eurozone and the recession of its economy do not allow us to count on the rapid growth of the euro.
The dynamics of central bank balances
The triumph of hope over experience supports not only EUR / USD, but US stocks. Investors understand that without success in testing drugs for coronavirus and without a quick recovery of the US economy, the potential for upward movement of stock indices is limited. Nevertheless, the S&P 500 grew by 27% from the levels of March lows. Another rally driver was the intention of some state governors to open the economy and a statement by Steve Mnuchin. The finance minister is confident that companies should return to work in May-June, as US GDP will return to normal in July-September. According to the Congressional Budget Office, the economy will expand by 17% in the second half of 2020.
On the side of the US dollar plays a deterioration in international trade. The indicator in February fell by 2.6% after falling by 1.5% m / m in January. And these are just flowers!
The dynamics of the US dollar and international trade
Source: Nordea Markets.
Thus, US stock indices are pushing EUR / USD up, however, the greenback trumps have not yet won, and the euro has plenty of vulnerabilities, which makes the main currency pair maintain a tendency to consolidate in the range of 1,065-1,115.
LiteForex Analyst Source