18.02.202011:15 Forex Analysis & Reviews: Euro's small steps and dollar's firm tread

Recently, the European currency has to overcome the powerful resistance of the downward spiral in which it finds itself. At the same time, there is a struggle for leadership with the greenback in the EUR / USD pair. According to analysts, the current tactic of the euro is akin to the "ant" step, when difficulties are overcome little by little, time after time, and not instantly.

The single European currency uses all the trump cards to break out of the vicious circle of the fall, experts say. For example, on Monday, February 17, it tried to find support around three-year lows but failed. Recall that the experts considered the minimum value to be 1.0830, to which the euro recently fell. On Monday, the EUR / USD pair tried to rise to 1.0841, but could not stay in the green zone for a long time.

On Tuesday, February 18, the pair again went to the bottom to the minimum mark of 1.0827. It turned out to be very difficult to get out of the downward flow, so the tandem remains in the current limits.

According to analysts, a downward trend has persisted in the EUR / USD pair for more than six weeks, which threatens to develop into a long depressive trend. Moreover, a report on the eurozone GDP which was published last February 14, added fuel to the fire. Recall that in the fourth quarter this indicator rose only by 0.9% year-on-year, which is much lower than the previous 1.2%, and a quarterly basis of 0.1%. As a result, the piggy bank of Euro-pessimism was full, and the downward trend, which became the constant companion of the euro from the beginning of the year, escalated to the limit. However, a single currency struggles with despondency, periodically trying to grow. The euro is moving towards its goal with "ant" steps, and experts expect that in the medium and long term, the situation will normalize.

However, the current problems put a lot of pressure on both the European economy and the single currency. One of such negative factors is the internal differences in the economy of a number of states. The long-term economic weakness of the countries of Southern Europe, such as Greece, Spain, Portugal, and Italy, also adds to the negativity. An additional depressing factor was the British exit from the EU, which entailed the need to re-build trade and economic relations. The so-called "trade tariff conflict" with the US, which impedes the development of exports, also contributes to an active weakening of the single currency.

When comparing key indicators of the American economy and the eurozone economy, which includes data on employment, inflation, GDP growth rates, etc., the situation turns out to be not in favor of the euro. It loses to the greenback in all respects, analysts say. This was confirmed by the long downward trend in the EUR/USD pair over the past two years.

An additional negative to the current picture is the coronavirus epidemic (COVID-19). Amid the proliferation of COVID-19, China's demand for the number of European products is rapidly declining. This jeopardizes the economies of most countries in the eurozone, such as Germany, which is export-oriented. The volume of German exports to China is many times greater than supplies from the United States, so a sharp decline in demand from China can bring down both the German economy and the eurozone as a whole.

Experts reaffirm that a similar situation is favorable for the American economy and for the greenback. The American currency has never missed a chance to grow, using the weakness of its rival. A stronger US economy attracts investors in dollars, giving an additional incentive for growth. According to analysts, at the moment, the greenback serves as a capital rush from the euro as a funding and lending currency to a safe haven. This takes away an additional chance of recovery for the euro, giving odds to the dollar.

Experts added that the pessimistic picture regarding the euro still has glimmers of hope. The tactics of the "ant" step, chosen by the single currency, can give a positive result in the long run. However, in the near future, it is not worth counting on a noticeable rise. It is best to pay attention to the current strategy, using the principle of "Slow and steady - you will continue," gradually moving towards price peaks.