According to experts, the current tension in the financial market was provoked not only by the COVID-19 pandemic, but also by the extremely disappointing PMI data for the eurozone countries. Analysts expect an improvement in the greenback situation and deterioration with the euro.
Currently, the EUR/USD pair is under pressure. This is due to the unprecedented measures taken by the Federal Reserve in providing for an unlimited purchase of US Treasury bonds and mortgage-backed securities. This step was necessary to maintain the economic balance due to the large-scale spread of coronavirus and a sharp decrease in production activity.
Experts at ANZ Bank believe that in this situation, the greenback has great chances to demonstrate explosive growth in the short term. They are confident that the dollar index (USDX) may rise to around 105 in relation to a basket of major world currencies. Analysts said that this is facilitated by the total lack of dollars for transactions in the global market.
Taking into account the shortage of USD, last week the Fed agreed with nine leading central banks, including the Reserve Bank of Australia and the Monetary Authority of Singapore, to form separate funding channels. Thanks to this, the markets gained access to additional $450 billion in dollar funds, according to ANZ.
Many economists are confident that the Fed will support the already unrelenting demand for greenbacks. However, experts are concerned about some potentially negative aspects of USD growth. These include a deterioration in the dynamics of the currencies of developing countries, a rise in the cost of US exports and a high probability of parity in the EUR/USD pair.
Experts are optimistic on the prospects for the European currency, but at the same time, fear the implementation of the worst-case scenario as gloomy statistics on the PMI index for the eurozone contribute to pessimistic sentiments. According to current data, in March 2020, the preliminary index of PMI procurement managers for the manufacturing sector in France fell to 42.9 points, compared with 49.7 points in February. In the services sector, the situation turned out to be appalling, experts emphasize that the PMI index collapsed immediately to 29.0 points, compared with 52.6 points in February 2020.
In Germany, the situation with the PMI turned out to be almost similar to that of France, as the preliminary index of procurement managers for the manufacturing sector fell to 45.7 points compared to the 48 points in February. At the same time, the service sector also went into a deep minus where the PMI index fell to 34.5 points compared to 52.5 points in February this year. As for the overall manufacturing PMI of the eurozone, analysts also have no illusions, where, in March 2020, it fell to 44.8 points, while in February this figure was 49.2 points. Meanwhile, the preliminary index of PMI procurement managers for the eurozone services sector sank sharply to a historic low of 28.4 points.
Given the current unfavorable factors that put powerful pressure on the European currency, experts fear a further rollback of the euro. They do not expect the restoration of the euro in the near future, contrary to the greenback which is predicted to grow. At the moment, analysts are recording attempts of the pair to overcome the resistance level of 1.0890. According to forecasts, exit from this range will open the way to local highs of 1.0930 and 1.0980, which will give a new impetus to the classical tandem.
