This week promises to be difficult for both European and US currencies. Experts believe that the euro will not survive without financial incentives, and the dollar needs collective support.
The collective assistance that an American currency may require means a worldwide cash injection. These include not only the stimulus packages adopted by the US monetary authorities, but also the active buying of dollars by investors around the world. It can be recalled that such a mood prevailed in the market in the last few weeks. Many investors preferred to invest in USD, rightly considering it one of the best defensive assets.
However, experts warn that a moderately positive trend in relation to the dollar may change, although they do not exclude that the whole current week will be a failure for the USD. One of the important signals is a decrease in risk appetite, and against this background, the vulnerability of the dollar is clearly visible. At such moments, the demand for the US currency falls, and its status as an asset-seeker becomes not an advantage, but a disadvantage. According to experts, the dollar is sensitive to the level of anti-risk sentiment.Experts consider macro statistics to be another important indicator of its dynamics, which recently looks depressing.
The key indicator for the dynamics of the US currency remains the state of the US labor market, in particular the number of applications for unemployment benefits. Last week, their number reached 16 million, amounting to about 10% of the country's labor resources. In April 2020, experts expect an almost double jump in unemployment growth - up to 30 million. According to experts, this threatens massive risks to the American economy, which is experiencing an unprecedented employment crisis.
In addition, preliminary data on US GDP for the first quarter of 2020 are expected this week. According to expert forecasts, this indicator may decline by 4%. On Thursday, April 30, there will be a current report on applications for unemployment benefits in the United States, which could inflict another blow to the unbalanced US economy. In this situation, analysts warn that we should not expect the dollar's growth. Moreover, the risks of a noticeable subsidence of the USD are increasing at times.
The alarm of investors is also caused by the dynamics of the European currency and it reflects the critical state of the eurozone economy. Earlier, experts noted a sharp decline in economic activity in the EU countries, which continues to increase, despite the efforts of European leaders in monetary stimulation.
The EU summit, held at the end of last week, worsened the situation. It became an additional factor to hit the euro. The last summit did not answer the key questions that are important for the existence of the entire European Union. Moreover, the leaders failed to agree on a long-term financial assistance program, while the topic of "corona-bonds" also hung. The specific amount of monetary incentives that the EU countries are ready to allocate also came into question. Eurogroup members have proposed the formation of a fund with reserves of about € 1 trillion. Presumably, this amount can be included in the seven-year budget (MFF) of the EU.
One of the important results of the summit was the adoption of an emergency assistance program for the European economy in the amount of € 540 billion. This project, aimed at supporting business and the public, will be implemented on June 1, 2020. The lion's share of the funds will go to the economies of the countries most affected by the COVID-19. These include Italy, Spain and several other countries. According to analysts, the already mentioned "corona bond" could be an important help in this matter, but their release causes resistance in some EU countries. The opponents of COVID bonds are Germany, the Netherlands and others. The reason for this refusal is obvious: unwillingness to pay for poorer neighbors in the Alliance. In the event of the issue of "corona-bonds" and their further monetary support, Germany and other leading European countries will have to take on part of the debt burden of Italy, Spain and other countries whose economies were destroyed by COVID-19.
The current situation keeps the European currency in suspense, the scales of which are more and more inclined towards the decline. Gloomy economic data, which is expected on Thursday, April 30, is capable of "finishing" the euro. By the end of the week, important information will arrive on the market, in particular on the level of inflation and applications for unemployment benefits in the EU. Thus, experts expect a serious deterioration in these indicators, which will negatively affect the dynamics of the euro. Analysts are sure that the situation of the "European currency" will be uncertain again, and the downward trend will resume.
At the same time, experts do not exclude the activation of "bears" in the dollar in the near future. They had to go through a series of difficulties at the end of last week. After a long victory, the US dollar declined noticeably, which greatly worried the EUR/USD pair sellers. A lot of excitement was caused by anxiety about the future fate of the euro. It can be recalled that the dollar traded 0.7% more expensive against the euro over the past week, and this was the largest three-week increase. Analysts believe that the dollar is unlikely to repeat its record in the near future. On the morning of Monday, April 27, the EUR/USD pair was in the range of 1.0777 - 1.0778, but then sharply increased. To date, the pair is trading in the range of 1.0842 - 1.0844, testing out other levels for strength.
According to experts, the dollar should not count on supporting factors this week. Earlier, a massive collapse of oil quotes served as a springboard for it, after which investors massively fled into protective assets, primarily in USD. Now, this is unlikely. Analysts also record a weakening of material incentives for the euro and fear a total decline in the EUR/USD pair.
