The eternal confrontation between American and European currencies, worsened during the COVID-19 pandemic, is gaining impulse. Important decisions made by several governments to minimize the negative effects of coronavirus on the economy put pressure on key currencies. Experts believe that a small imbalance will remain in the EUR/USD pair by the end of this month.
According to the calculations of BK Asset Management specialists, the relative balance in the classic pair will reach a new level in the summer of 2020. Analysts predict the parity between the dollar and the euro in the EUR/USD pair. According to BK Asset Management, reaching this parity in the short-term will take place with a high degree of probability.
According to the company's currency strategists, European leaders are pushing the European currency along this path, who are not in a hurry to show solidarity and support the regional economies that have weakened due to a pandemic. Experts consider the recent decision of the German Constitutional Court to be one of the catalysts for undermining the euro. According to the observations of BK Asset Management, on Wednesday, May 6, the euro in the EUR/USD pair resumed its decline precisely after the actions of the main legal body of Germany. It can be recalled that the German Constitutional Court challenged the country's participation in the eurozone financial incentive program. Representatives of Germany's main legal body gave the ECB three months to justify the regulator's purchases made as part of its bond purchase program. At the same time, German authorities are opposed to the participation of the Bundesbank in one of the key schemes for stimulating the eurozone.
Such difficulties and inability to reach a compromise are causing significant blows to the European currency. The economy of the eurozone is in a state of falling, and European leaders will have to make a lot of efforts to revive it. However, analysts say that the inability to negotiate negates all efforts. This weakens the positions of both the euro and the dollar in the EUR/USD pair. On Wednesday, may 6, "European" currency fell by 0.4%, to 1.0800. It can be noted that it reached a minimum value of 1.0783 almost two weeks ago. On the morning of Thursday, May 7, the EUR/USD pair was trading near the range of 1.0794 - 1.0795. Later, the pair fell to 1.0789, but managed to rise to the morning positions.
According to analysts, pressure on the euro will continue in the near future, and current attempts at an upward correction will be perceived as a signal for sale. According to experts, a breakthrough of the support level of 1.0830 could lead to a massive sale of risky assets and send the single currency to a critical level of 1.0780. A day earlier, the EUR / USD pair tested this minimum after a negative economic report by the European Commission, forcing the bulls to make a lot of efforts to return to the starting point.
It can be recalled on Wednesday, May 6, the leadership of the European Commission submitted a report according to which this year the reduction in GDP of the eurozone will reach 7.7%. The previous forecast assumed an increase of 1.2%. The experts are also worried about the possible increase in inflationary pressure, although the European Commission hopes that deflation can be avoided. According to preliminary estimates, inflation in the eurozone will remain at 0.2% in 2020, and at 1.1% in 2021. As for unemployment, it will remain at around 9.6% this year in the eurozone, and it will drop to 8.6% next year.
The current situation greatly worsens the position of the European currency. Experts say that this leads to an imbalance in the EUR/USD pair. Thus, you have to make a lot of effort to reach a relative balance in the pair. According to currency strategists at Bank of America, an important factor for the euro is its undervaluation against the dollar. It is estimated to be approximately 10%, but this gap will widen due to the coronavirus pandemic. As a result, the undervaluation of EUR against USD can reach higher values.
The US currency is also having a hard time. Despite its high resistance to negative factors and force majeure, the dollar sometimes shows weakness. This is expressed in periodic subsidence of the main currency. An additional factor in the decline is the disappointing macro statistics, demonstrating "holes" in the US economy. Among such weaknesses, experts include an increase in the foreign trade deficit and a reduction in business activity in the US services sector.
According to the US Department of Commerce, the country's foreign trade deficit increased by 11.6% to $ 44.4 billion last month. As for imports, it fell by more than 6.0% to $ 232.2 billion, and exports declined by 9.6%, to $ 187.7 billion. According to analysts, the dollar's chances of another rise are sharply reduced in the current situation.
The US business activity index in the service sector also tripped the dollar, which dropped significantly. According to data from the analytical company IHS Markit, in April 2020, such an important indicator as the purchasing managers' index PMI for the services sector fell to 26.7 points. In March this year, it was 39.8 points. It can be recalled that the index value above 50 points indicates an increase in economic activity, and below this level - a serious decline.
According to experts, the same difficulties experienced by key currencies can contribute to the summer parity of the dollar and the euro. Basically, they relate to the periodic decline in the quotes of EUR and USD, although in this regard, the "European" currency suffers more than the "American". The single currency is more often threatened by weakening, and basically it fell under the pressure of gloomy economic statistics. The dollar, on the other hand, is more stable in this regard, and its recovery abilities are quite strong. However, analysts summarize that the EUR/USD pair is not immune from short-term parity in the near future.
