EUR: the eye of the storm

EUR: the eye of the storm

2020-04-23 • Updated

Broken glass

“Any two points can make a straight line” – that’s a fair reply to the picture below if I intend to convince you that the mid-term outlook for the Euro is duller than anything else. Let’s see the strategic horizon then.

EURUSDH4.png

It looks like the downtrend rarely has been alternated by an upward trajectory with the EUR/USD. The breaking point is the crisis of 2008 after which the EUR could never stand up against the USD and hold its ground for more than a year or so. The last episode of a downward movement which starts in the middle of 2018 is so smooth and consistent as if it was “supposed” to be there. In this context, the vulnerability of the EUR against the US dollar due to the virus changes little in the grand scheme.

EURUSDMonthly.png

In fact, the crisis Europe is going through now may expose and propel those internal mechanisms that are driving the EUR down. Those mechanisms may be the same that question the economic integrity of the European Union itself, and hence, EUR as well. It’s yet time to open Oswald Spengler’s “The Decline of the West”, though. What’s happening right now in Europe?

Lower than expected

The latest data input from the European economic indicators was the Euro Area Manufacturing PMI. The released 33.6 mark was significantly lower than the expected 39.2, even with the factored in virus drawdown. That means that the situation in Europe may be worse than it may be conceived. In fact, the more news comes to the stage, the more it seems so. No surprise that the European stocks are shaken and the EUR gets weaker.

EUR2.jpg

Is there a way out?

In theory, of course, there is. But realistically, it is very hard to achieve a sustainable exit from the recession for the EU as such. There are too many disparities and economic differences between the countries, applied to the virus response specifically, and in general, that has been the case even before the virus. The infections numbers are still rising in some of the countries, while in others they never have threatened the state as much as they did from the very beginning for others. Virus lockdowns are big damage to businesses, and lifting these lockdowns will be another problem when the time comes. And the list goes on, so it is easier to name what is not an obstacle for the EU to get over the crisis and have the EUR get in the zone of confidence. Let’s not be pessimistic about the EUR though. The battle goes on.

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