The classic EUR/USD currency pair has lost its balance once again: strong pressure has been put on the European currency again, while the US currency is actively using the chance of recovery. Experts fear the excessive subsidence of the eurocurrency and, as a result, a long skew in the pair.
The dollar is currently growing steadily due to the weakness of the euro, which has been turned down by a chain of adverse events. First of all, they include disappointing macro statistics on the eurozone countries and the verdict issued by the German Constitutional Court on Tuesday, May 5. It can be recalled that the main judicial body of Germany approved the program for the purchase of bonds, launched by the ECB five years ago. This decision gives the regulator a signal to expand the asset repurchase program, which maintains the integrity of the eurozone, and the region's economy is financially strengthened and easier to recover from the COVID-19 pandemic.
Moreover, the decision of the Constitutional Court of Germany caused a bombshell effect for the euro. The single currency rapidly declined, finding itself under a tremendous financial pressure, while taking the EUR/USD pair along with it . On Tuesday, May 5, the pair was trading near the level of 1.0843, but could not stay at this level for a long time. On Wednesday morning, May 6, the EUR/USD pair slipped to 1.0825 - 1.0826. Later, the pair rose slightly and reached a relative price balance.
Another negative impulse of the collapse of the "European" currency was the failed data on activity in the manufacturing sector of the eurozone. According to a study by Markit, Italy's economy was the worst affected by the coronavirus.
The Markit report said that the April PMI Purchasing Managers Index for Italy's manufacturing sector fell to 31.1 points, although it was 40.3 points in March. It can be recalled that a fall below 50 points is considered critical, and recovery in this case can be very problematic. France's economy is not far from Italy: in April, the PMI of purchasing managers did not exceed 31.5 points, compared with 43.2 points recorded in March 2020.
Against the backdrop of serious concerns about the successful recovery of its economy, the Italian authorities are among the first to advocate the introduction of pan-European government bonds (the so-called "corona bonds"). It is expected that they will help to summarize the debt of the eurozone and to distribute the financial burden among other EU states. In this situation, the principle of mutual assistance is involved, when the stronger northern countries of the Eurobloc help the weakened southern ones.
The current state of affairs undermines the already weak position of the European currency. A provocative factor for its strengthening is the emergency asset purchase program initiated by the ECB in March this year, in the midst of a pandemic. Within the framework of this program, the regulator is ready to acquire € 750 billion of European bonds in addition to the two already implemented quantitative easing (QE) programs. By the beginning of summer, the ECB plans to spend another € 120 billion to combat the negative effects of COVID-19. According to economists, the regulator will acquire assets totaling € 1.11 trillion this year. These are truly impressive figures, since even € 750 billion make up about 6% of the eurozone's GDP. However, the announced amounts are not the limit, as if necessary and to support the European economy, the ECB is ready to expand the current asset purchase program.
In this situation, amid the fall of the euro, demand for USD, which is usually used as a safe haven, has sharply increased again. At the same time, experts do not rule out another wave of EUR/USD sales, especially if the pair returns to the zone of high volatility again. At the moment, the euro in the EUR/USD pair remains under pressure due to some investor distrust in the prospects for European assets. On the contrary, the dollar is ready to turn up at the earliest opportunity, and this shakes the classic pair. Experts warn that a certain imbalance in the EUR/USD pair can create difficulties in the short term.
