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Euro May Fall Ahead of Merkel's Testimony to Bundestag on Covid-19

Euro May Fall Ahead of Merkel's Testimony to Bundestag on Covid-19

2020-05-13 07:00:00
Dimitri Zabelin, Analyst
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Euro Outlook Bearish, EUR/CHF Technical Analysis, Angela Merkel, Coronavirus – Talking Points

  • Euro could wobble then fall on German Chancellor Angela Merkel’s testimony
  • Eurozone economic growth and financial stability are increasingly at risk
  • EUR/CHF selloff may accelerate if pair can’t crack steep slope of depreciation

Asia-Pacific Recap

The New Zealand Dollar experienced unusually-high volatility following the Reserve Bank of New Zealand’s (RBNZ) rate decision. Policymakers agreed to keep the Overnight Cash Rate (OCR) at 0.25 percent and expanded their large scale asset purchasing program to NZ$60b. NZD initially rallied but then quickly turned a corner and plunged following additional commentary from officials. Read the full report here.

Euro May Fall on Merkel Testimony to Bundestag

The Euro may decline ahead of German Chancellor Angela Merkel’s testimony to the Bundestag, Germany’s federal parliament. She will be giving her updates on the coronavirus pandemic as well as answering lawmakers’ questions. This will include the prospect of easing government-enforced lockdown measures. At the time of writing, Germany currently has just short of 173,000 cases of Covid-19.

However, the prospect of an aggressive relaxation of lockdown measures is not likely, given that her announcement last week to ease shelter-in-place orders has led to a small rise in country-wide infections. Mrs. Merkel has to wrestle with the same dilemma her peers in other countries have to address: reconciling the necessity to reopen businesses to maintain economic integrity with the health of the public.

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However, the backdrop of this dilemma is considerably less favorable in the Eurozone where questions about financial stability and the efficacy of the currency union are once again being questioned. The disagreement between policymakers on how to pay for the anti-viral measures has widened the embedded fissure between North and South.

This has threatened to imperial the economically-hammered region into a politically-divided spat at a time when unity and a consensus on coordinated efforts to combat the virus are needed to restore confidence. To get more insight on how geopolitical shocks affect financial markets, be sure to follow me on Twitter @ZabelinDimitri.

EUR/CHF outlook

EUR/CHF’s selloff may accelerate ahead of Merkel’s testimony as the pair gets squeezed between a steepened slope of depreciation (labelled as “Downtrend Beta”) and stubborn support at 1.0508. This cross-section will provide insight as to how traders feel about the outlook. Failure to break the downtrend may signal an underlying bearish bias and further amplify the pair’s losses.

EUR/CHF – Daily Chart

Chart showing EUR/CHF

EUR/CHF chart created using TradingView

On the other hand, if support holds, this may lead to an invalidation of the downtrend. This may convey the message to traders that they may be bearish, but perhaps not to such a degree that the slope of depreciation implies. However, even if EUR/CHF manages to crack it, the pair’s gains may be capped at formidable support-turned-resistance at 1.0610.

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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