FX market review for February 14, 2020
Everyone is interested in the potential for further decline in the single currency. not only traded in a downtrend since the beginning of the month, but also declined during 8 of the last 9 days, while the only day of growth affected the currency very slightly. Investors lowered the euro to the lows of April 2017. To assess the prospects for a further decline, we must understand why the euro is losing value so quickly.
6 reasons to reduce the euro
There are at least six reasons for the fall of the pair, and they are mainly associated with differences in the economies of the United States and the eurozone.
1. The ECB considers low rates justified and hints at a possible increase in stimulating the economy, while the Fed adheres to a stable policy.
2. Eurozone data are deteriorating, including a strong fall.
3. Fears that GDP reports will turn out to be weak, as well as prospects for a strong release in the US.
4. The eurozone economy relies on industrial production, and is therefore more vulnerable to Chinese risks.
5. Low rates make the euro an attractive funding currency.
6. Strengthens as an asset of the “safe haven” against the background of an outbreak of coronavirus.
As the data is likely to continue to show a discrepancy between the economies of the eurozone and the US in the coming weeks, further losses of EUR can be expected. The next important support level for the pair is 1.05, but bearish pressure may also weaken around 1.0800 (which kept the collapse in early 2016 and mid-2015).
When it comes to trading, fighting trends can be futile. A reversal of positions will be justified only after reaching the local bottom, so at the moment it is better to go after the market. And the increase in the number of people infected with coronavirus does not make the situation better. Euro is a currency with a high beta coefficient, which suffers in conditions of falling demand for risky assets.
In fact, all major currencies were down on Thursday amid news about the coronavirus. The positive comments of the Reserve Bank of New Zealand and the Bank of Canada could not prevent the loss. However, we expect that at a crucial moment they will outperform our competitors, since these central banks do not see any special problems associated with the epidemic. The decline also remains only a matter of time. The dollar is strengthening as a safe haven currency, but the 110 mark turned out to be a tough level of resistance. If the stock market continues to decline, and government bond yields follow, the pair will very quickly fall below 109.50.
And finally, it continues to demonstrate increased volatility after the resignation of Finance Minister Sajid Javid. The decision (which no one expected) was a protest against the personnel policy of Prime Minister Johnson. The pair dropped below 1.29, but recovered after Rishi Sunak, son-in-law of a billionaire with extensive experience in the financial market, was appointed to this post. Sunak is also considered the “rising star” of the Conservative Party. The pound grew in the hope that the new minister would increase budget spending. For a long period, he supported tax cuts and increased spending on infrastructure.