On the eve of the October meeting of the European Central Bank, the euro-dollar pair is impulsively declining, updating multi-day price lows. The price is heading towards the main support level of 1.1700, against the background of the simultaneous growth of the dollar index and the weakening of the euro throughout the market.
It is noteworthy that the catalyst for the multidirectional movement of currencies is the coronavirus, which again became the main topic in the foreign exchange market. Only COVID-19 "acts" on currencies in different ways – if the dollar becomes more expensive against the background of growing anti-risk sentiment, the euro becomes cheaper against the background of stricter quarantine restrictions in the European Union. Today's coronavirus anti-records again made market participants nervous. And not without reason: European countries continue to tighten the screws, continuing the fight against the COVID-19 pandemic.
The downward impulse on Wednesday was triggered by the news flow from France. According to unofficial information, they may announce a second lockdown on Wednesday. French media, citing their own anonymous sources, report that Emmanuel Macron may impose a strict quarantine on the entire mainland for the next four weeks. According to sources, the proposed quarantine will be somewhat milder than the previous one. First, some businesses and most state institutions will operate, and second, the authorities will not close schools and kindergartens. However, non-food stores, bars, and restaurants will be closed around the clock (currently there is only a curfew at night). If the President's initiative is supported, the restrictions will begin to apply as early as midnight on October 29.
According to a number of experts, the rest of Europe will also resort to similar measures soon enough, given the rate of spread of the coronavirus. According to the WHO, over the past week, 40% more patients with coronavirus disease have died in the European Union than a week earlier. Also, over the past 7 days, the number of infections has increased by a third - most of the new cases are in France, Spain, the UK, and the Netherlands.
Note that the Spanish authorities declared an emergency situation in the country last Sunday and introduced a night curfew everywhere from 11:00 pm to 6:00 am (except for the Canary Islands). If the situation does not improve in the next week, the Spaniards are ready to tighten restrictions, up to a complete lockdown. In Italy, a record number of patients was recorded (more than 20,000) over the past day. New restrictions in this country include the closure of restaurants, cafes, and pastry shops. Cinemas, theaters, casinos, gyms, swimming pools, and spas are also forced to close. Germany is also going to strengthen quarantine. Bars, clubs, pubs, and similar establishments will be closed throughout November, and overnight stays in hotels will only be allowed for good reason. Cinemas, theaters, and sports facilities will also be closed.
By and large, at the moment, the worst scenario of all possible is being realized, when key European countries introduce an almost complete lockdown. And although the autumn measures are still not as strict as that of spring (at least for the moment), traders are seriously concerned about the prospects for the European economy. Even if we proceed from the measures already announced, it can be assumed that the services, tourism, and air traffic will again fall - especially in France, where the most stringent restrictions are being introduced. Naturally, the lockdown ricocheted to the rest of the European economy. Consumer activity will slow down again, inflation will fall again, PMI and ZEW IFO indices will once again drop. As a result, quarantine measures will undermine the already fragile recovery of the European economy.
Against the background of such a gloomy fundamental picture, the euro is depreciating throughout the market. Even at the beginning of the week, traders were very lenient about quarantine restrictions. But today, market participants have sounded the alarm, given the intentions of the leaders of key European countries to repeat the spring scenario.
The European Commission has also added fuel to the fire, Chair Ursula von der Leyen made a separate appeal on Wednesday in connection with the current situation. According to her, in the next three to four weeks there will be a significant increase in the incidence of coronavirus, and this fact is alarming. Von der Leyen also called on European governments "to more actively come forward with a coordinated response against the second wave of the epidemic." In other words, Brussels actually supported the policy of strengthening quarantine measures.
And yet, despite such a powerful downward impulse and such a gloomy foundation, selling the EUR/USD pair looks quite risky - especially if we consider the medium-term prospects. The market will quickly play back the very fact of introducing restrictive measures in Europe, after which it will again switch to American events. Less than a week is left before the US presidential election, and this circumstance will prevail over the greenback. At the moment, the pair is trading at 1.1730, and over the next 12 hours, it may slide to the 1.1700 support level. But judging by the dynamics of the downward movement, it will be difficult for the bears to overcome this target, and even more so to gain a foothold within the 16th figure. Therefore, in my opinion, in this case, it is worth accepting the possible lost profit in the by 30-40 points.
