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09:45
Euro: save Rome or die!

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The ECB wants to prove that Italy has a strong central bank that will help the country survive the pandemic


When there is too much optimism in the market, good news is received with a bang, and bad news is ignored, willy-nilly you will begin to wonder if it’s time to tear your claws. While Donald Trump thinks where in the sentence “you can not be pardoned” put a comma and is limited to half measures as revenge for China for Hong Kong, the S&P 500 is growing, forgetting about the most serious economic subsidence since the Great Depression and unemployment growth in the direction of 20%, and pessimistic forecasts by the Congressional Budget Office. The CBO reduced its January estimate of GDP by $ 2030 by $ 15.7 trillion, claims that the US economy will sink by 5.6% in 2020, and it will take years to recover. 

 

 

Rally S&P 500 - only part of the puzzle, laid out by the "bulls" in EUR / USD. At the time of financial market turmoil, investors rushed to safe haven assets, primarily treasuries and greenbacks, but as global economies open, money begins to flow in the opposite direction. The USD index has been falling for several consecutive trading days, and the yield on 30-year US Treasury bonds reached a maximum since March 20. However, tensions between the States and the Middle Kingdom have not disappeared. According to Bloomberg insider, in response to White House sanctions, Beijing ordered state-owned companies to suspend imports of US agricultural products. China risks not fulfilling its obligations under the January trade agreement as part of Phase 1, which is another story altogether. 


The euro is growing thanks to the Franco-German proposal for fiscal stimulus, a statement by the European Commission to issue bonds of € 750 billion and hopes for the ECB to expand its emergency asset purchase program due to a pandemic of € 500-750 billion. Investors expect that in this scenario, the yield on Italian bonds it will continue to fall, as well as their spread with German counterparts, which will finally save Eurosceptics from illusions. Christine Lagarde intends to save Rome, because Italy is often compared with Japan. The same aging population, the same catastrophic public debt, the same endless struggle for inflation ... Nevertheless, Tokyo has its own central bank, and the ECB must prove that the state with the Apennines also has it. 


The dynamics of the national debt of Italy, Japan and the USA

     

Source: Bloomberg.


Along with the expansion of QE, the European regulator may announce the purchase of bonds of the “fallen angel” and the process of reinvesting income from acquired assets for many years. 


The fiscal and monetary stimulus is pushing EUR / USD north and forcing banks to revise their forecasts. HSBC raised it from 1.05 to 1.1 at the end of 2020 due to the fall of the "existential tail of the Eurozone collapse risk." By the way, the consensus forecast of Bloomberg experts also rose to 1.1. 

 

Consensus forecast for EUR / USD

Source: Bloomberg.

 

At the same time, the Franco-German project has not yet been approved, and the ECB’s caution may end badly for the “bulls” in EUR / USD. However, this circumstance and the escalation of the trade conflict between the USA and China would not start the process of profit taking. However, while the euro leaves no attempts to break above $ 1,115.

 

Analytics and forecast of the euro dollar pair  Demidenko Dmitry LiteForex

 

 

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