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Euro Forecast: EUR/USD Outlook Worsens as Aid Talks Accentuate Divisions

Euro Forecast: EUR/USD Outlook Worsens as Aid Talks Accentuate Divisions

2020-04-11 20:00:00
Martin Essex, MSTA, Analyst
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EURUSD Euro Chart price

Source: IG Charts

Fundamental Euro Forecast: Bearish

  • A virtual meeting of Eurozone finance ministers last week emphasized again the splits among them as they argued over how best to protect the area from the economic impact of the coronavirus pandemic.
  • Their squabble over loans for hard-hit countries like Spain and Italy, the region’s bailout fund and “coronabonds” has emphasized the long-term downside risks for the Euro.

Euro price outlook worsens

A video conference last week of members of the informal Eurogroup of Eurozone finance ministers once again highlighted the deep split between the richer northern members of the currency union, like Germany and the Netherlands, and their poorer southern neighbors.

The virtual meeting was intended to devise a coordinated response to the economic fallout from the Covid-19 pandemic but instead highlighted the chasm over the conditions for loans to hard-hit countries like Spain and Italy under the Eurozone bailout fund, the European Stability Mechanism, as well as the issue of joint debt, dubbedcoronabonds”, as part of a package to offset the economic damage caused by the spread of the virus.

For EUR/USD traders, the Eurogroup meeting was overshadowed by Thursday’s news that new weekly jobless claims in the US had topped six million for the second successive week and by the Federal Reserve’s new $2.3 trillion package to boost local governments as well as small and medium-sized businesses.

EURUSD Price Chart, Daily Timeframe (January 2 – April 9, 2020)

EURUSD Chart

Chart by IG (You can click on it for a larger image)

EUR/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 24% 1% 10%
Weekly 22% 8% 14%
What does it mean for price action?
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However, the open disagreements between the Eurozone nations – and the confrontational language used – has to be long-term negative for the Euro. Italian Prime Minister Giuseppe Conte went as far as to tell the BBC that the EU riskedcollapsingbecause of the coronavirus crisis.If we do not seize the opportunity to put new life into the European project, the risk of failure is real,” he said.

This does not mean the Eurozone countries will abandon the Euro anytime soon. However, the risk of a break-up has risen to its highest level for three years according to Sentix, a Frankfurt-based company that provides sentiment research and data, conductsglobal investor surveys and manages mutual and institutional funds using a behavioral finance approach

Sentix Euro Break-Up Index Chart, Monthly Timeframe (June 2012 – March 2020)

SEntix Eurozne Break-up index

Source: Refinitiv Datastream / DailyFX

Week ahead:

Turning to the immediate future, traders will need to focus again in the coming days on government and central bank efforts to control the spread of Covid-19 and its economic impact, with any signs of progress likely to boost EUR/USD near-term. Data are still unlikely to have as much of an impact as usual. The only major Eurozone statistics to watch out for are Thursday’s final German inflation numbers for March and Eurozone industrial production figures for February plus Friday’s final March Eurozone inflation numbers.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below

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