EUR/USD Slides After European Commission Downgrades Forecasts, Risks to the Downside
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EUR/USD Price, News and Analysis:
- European Commission downgrades growth forecasts, prominent risks to the downside.
- EUR/USD slips lower, US dollar grabs a small bid.
The latest European Economic Forecast (Summer interim) suggests that the collapse in economic output in the euro area is ‘likely to even deeper in the second quarter’ of the year reflecting the spread of COVID-19 and the intensification of containment measures. The euro area economy is now expected to contract by 8.7% in 2020 – compared to -7.7% in the Spring forecast – while the recovery in 2021 is now seen at 6.1% compared to 6.3% in the previous report. The Commission also warns that uncertainty encompassing this forecast is ‘very high’ and that ‘risks surrounding the growth projections are severe and most of them are on the downside’.
Three member states are now expected to be hit by double-digit economic contraction in 2020. France is expected to contract by 10.6% this year before growing by 7.6% in 2021 (-8.2% and +7.4% in the Spring forecast), Spanish GDP is expected to contract by 10.9% this before growing by 7.1% in 2021 (-9.4% and +7.0%) while the Italian economy is set to contract by 11.2% this year and grow by 6.1% next year compared to -9.5% and +6.5% in the last forecast.
EUR/USD is back below 1.1300 after hitting 1.1333 before the new forecasts were released. The pair benefit from support off the 20-dma currently at 1.1248 while a cluster of recent lows should provide stronger support all the way down to 1.1168. Three recent daily highs between 1.1346 and 1.1353 provide resistance and guard the June 10 multi-month high at 1.1423.
The latest Commitment of Traders Report shows traders liquidating some of their longs positions, and increasing their short positions over the week, resulting in a USD2.85 billion cut in net long positions.
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EUR/USD Daily Price Chart (December 2019 – July 7, 2020)
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