US, WASHINGTON (ORDO NEWS) — When the “coronacrisis” had just begun, the euro rushed down – out of fear that a pandemic could lead to another existential crisis of the monetary union. However, now the single currency is gaining momentum, while the US dollar is losing value. Experts do believe that the euro claims to become a “safe haven.”
Eurosceptics, perhaps, could not have come up with a better reason to announce the imminent collapse of the single currency zone than the one that the coronavirus pandemic gave them. Their scenario seemed almost perfect: how can different countries successfully coordinate actions to combat the crisis, which do not recognize any borders? And, most importantly, who will pay for all this?
These topics determined not only the course of debates in Europe, but also the course of the single currency. The euro fell significantly at the beginning of the year, then “shot up” – but only in order to fall off in March from a 52-week high of $ 1.1496 to a 52-week low of $ 1.0635.
However, sinking to the bottom, the European currency began a new rise. At the moment, the euro is worth $ 1.1316, which again is significantly closer to the 52-week high than to the minimum. Thus, the dollar is worth 0.8838 euros. Since the recent low, the European currency has grown by 6.4%. In other words, the euro has stabilized markedly over the past three months. Foreign exchange traders who have relied on the “European” can deservedly enjoy the profits.
The euro has passed the Golden Cross
It is possible that the course will continue to grow further. This, on the one hand, is indicated by technical indicators, and on the other hand, by expert assessments. The economic news agency Bloomberg recently reported that the euro / dollar is close to crossing the 200-week moving average and gaining a foothold above it. If this really happens, it will be a signal in favor of the further strengthening of the European currency.
This, according to Bloomberg experts, would be an additional “bullish” signal in relation to the euro. So, in mid-May, the euro already crossed the 200-day “moving average”, and in mid-June it was followed by the so-called “golden cross” when the shorter “moving average” crosses the longer-term one: in this case, the 50-day “average” crossed the 200 day old. This is a signal of a short- and even medium-term positive trend.
According to analysts at Bloomberg, behind this rally of the euro is investor confidence in the correctness of the crisis management of the European authorities. The experts of the foreign exchange market Commerzbank adhere to the same opinion. “If we take a step back and look at the chart in a longer term, we can assume (…) that a certain stabilization of the euro can be expected in the coming months,” their recent statement said.
Compromise on EU restoration will eliminate internal split
The experts, however, drew attention to the fact that an aversion of risk may reappear on the market, and investors will respond to this in a long known way: they will rush into the “safe haven” – the American dollar. “Of course, there are enough crisis centers around the world,” analysts at Commerzbank admitted. Nevertheless, they are confident in the favorable prospects for the euro: “It is likely that in the coming months, when Germany will chair the EU, a compromise will be found on a plan to restore the European Union.”
This, according to experts, would mean eliminating the internal split in the ranks of the Union and the aggravating factor for a single currency. Of course, this is not about automatically overcoming all the negative factors associated with the pandemic. Nevertheless, the economies of the EU countries, thanks to market packages, coupled with measures taken by the European Central Bank, “are gradually getting out of a deep recession.”
At the same time, in the United States, in the run-up to the presidential election, there is an ever-deepening split. Since the Federal Reserve System (Fed) after a series of increases in the key rate again reduced it to almost zero, the dollar does not receive support even from this side: “The interest advantages of the dollar against the euro remained marginal and cannot be considered a serious argument in its favor” .
US pandemic rages even more than before
Another important factor, according to experts, is the coronavirus pandemic, which makes more and more doubt the competence of the American leadership. “To this is added, apparently, the uncontrolled course of the pandemic in the United States, which has shaken the faith of citizens in the ability of the authorities and the health system to react correctly,” analysts say.
I must say that recently in the USA the number of coronavirus victims has risen sharply. Since the start of the pandemic, some 3.3 million deaths have been reported, making the United States the epicenter of the pandemic. They account for about 25% of all deaths in the world caused by covid-19. Over the past week, more than 50,000 deaths are recorded in the United States daily.
In some states (for example, in Arizona, Texas and Florida), the pandemic, after the first steps to weaken restrictive measures, raged even more than before. So, in Arizona, according to media reports, in early July, a seven-day average was recorded, corresponding to the figures of the entire European Union. But at the same time, the EU population is 60 times the population of Arizona.
Euro instead of dollar – a new “safe haven”?
All this does not speak in favor of the dollar – and thus in favor of the euro. According to Bloomberg, its own dollar index has been steadily declining for three consecutive months. This index measures the movement of the US currency against a basket of other currencies, with a basket of one-third of the euro. Over the past year, a similar depreciation of the dollar has not yet been observed, admits Bloomberg.
In addition, traders already offer an additional margin, betting on the euro against the dollar. This is evidenced by the prices of the respective options. So, there is a tendency in the market to strengthen the euro against the dollar. Analysts at Commerzbank came to a similar conclusion: “Perhaps, by the end of the year, the euro will turn into a new “safe haven”.”
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