EUR / USD: dollar performs well, while euro continues to struggle

By | May 14, 2020
InstaForex
EUR / USD: dollar performs well, while euro continues to struggle
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The dismal comments of Fed Chairman Jerome Powell and the growing pessimism about the V-shaped recovery of the US economy caused the S&P 500 to fall and supported the greenback, while the euro, weighed down by internal problems, sank again.

The economic situation in Europe is far from being the best. In March, industrial production in the region decreased by 11.3%, demonstrating the maximum monthly decrease in the entire history of observations.

The ECB warns that the eurozone expects an unprecedented in speed and strength in peacetime economic downturn. Scenarios prepared by the experts of the financial institute suggest that the GDP of the currency block this year may fall by 5% -12%, depending on the duration of the restrictive measures and the success of European politicians to mitigate the economic consequences of coronavirus for businesses and workers.

Against the backdrop of a global pandemic and the inability of European countries to rally in the face of a common threat, the euro becomes the most vulnerable monetary unit G10, reports Bloomberg.

If the EUR / USD bulls were supported by US stock indexes before the beginning of the second week of May, then their fall may allow the greenback to firmly take the initiative in its hands. The euphoria about large-scale monetary and fiscal stimulus from the Fed and the White House, as well as hopes for a quick recovery of the US economy, is gradually dying.

According to a survey conducted recently by The Goldman Sachs, most executives of companies whose securities are included in the calculation base of the S&P 500 index doubt that the recovery of national GDP will be V-shaped. The consensus assessment of 64 experts from The Wall Street Journal suggests that in 2020, the US economy will shrink by 6.6% and will be able to reach levels that took place before the current crisis, not earlier than 2022.

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According to the US Treasury head Steven Mnuchin, the second quarter will be very weak, but if the United States slowly restarts the economy, the performance of subsequent quarters will improve.

A similar view is taken by Powell where he said, at a webinar organized by the Peterson Institute for International Economics, that the US GDP recovery would be slower than desired and Congress would need more incentives not to put an end to the efforts that had been undertaken earlier.

“Although the economic response was both timely and adequately large-scale, this chapter may not be the last, given that the upcoming path is very uncertain and subject to significant downward risks,” the head of the Fed said.

At the same time, Powell did not want to give a gift to the head of the White House, Donald Trump, whom the latter had previously hinted at. The Fed chairman said that the regulator has good tools for monetary expansion, and negative rates are not the option that the Central Bank is currently considering.

Awareness of the fact that the V-shaped recovery of the American economy is becoming a pipe dream and the euphoria brought the S&P 500 index too high, makes stock buyers take profits. The fall of US stock indices pushes the EUR / USD pair down. In the case of a breakthrough of support at 1.0770–1.0775, the likelihood of continued movement of the pair in the direction of the lower boundary of the medium-term consolidation range 1.0650–1.11150 will increase.

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