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28.02.202011:50 Forex Analysis & Reviews: Euro's finest hour

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Exchange Rates 28.02.2020 analysis

The European currency waited for its finest hour to the end of the current week. The volatility of the euro has increased sharply, giving it significant support, which can not be said about the US dollar. On the contrary, the US currency retreated, although it did not completely lose its position.

Most experts agree that the current situation is favorable for the euro. The single currency was finally able to part with the downward trend which lasted for quite a long time. According to experts, the main catalyst for this movement is the rapid spread of the Chinese coronavirus, which keeps markets in suspense. The threat of the COVID-19 pandemic made the dollar flinch, depriving it of support for a while. After the news that the first infected person appeared in the USA, the greenback fell in price against the yen, the Swiss franc, as well as the euro.

As it turns out, the US currency went on a total retreat because aside from falling against the above currencies, it sank against the pound, having lost the gains of the last three months. The reasons for this are not only due to the COVID-19 epidemic alone but also a record decline in the yield of 10-year US treasury bonds and the cessation of growth of US indices. Note that if this growth slows down, the persuasive power of the greenback is lost.

Experts were surprised by the fact that the US dollar did not react to positive statistics on orders for durable goods in the United States. Recall that, according to the report, all four indicators were higher than forecasts, and the preliminary value of GDP coincided with the calculations of analysts. However, the positive data did not cause the strengthening of the US currency and did not stop the growth of the European one, leaving the experts at a loss.

The single European currency took advantage of the situation, continuing accelerated growth against the dollar. Rumors that in the first half of this year, the Federal Reserve could reduce interest rates added fuel to the fire. Experts emphasized that this is necessary to stimulate economic growth in the United States which is slowing down due to the spread of the coronavirus. Many economists are confident that by the end of 2020, the interest rate in America will return to the range of 0.75% –1.0% from the current 1.5%.

The rapid rise of the euro extremely surprised the currency strategists of most large banks, forcing them to understand the reasons for what is happening. Many of them believe that the current macroeconomic data could not cause the euro to strengthen. They believe that the sudden growth of the euro is due to the support of key crosses. Such accelerations occur at those moments when a single currency is bought in crosses. At the same time, the dollar is falling, analysts stressed.

The German government's announcement about the possible deployment of an economic stimulus program also helped strengthen the Euro. Economists emphasized that it will be needed if the country's economy is severely affected by the COVID-19 epidemic.

Experts are not optimistic regarding the latest macroeconomic data for the eurozone, particularly for Germany, although there is no negative either. However, this did not disappoint anyone as the market was determined that current statistics would not bring any breakthrough. Analysts did not expect that the recent macroeconomic information, which they consider secondary, will provoke a strengthening of the euro by almost 100 points. Recall that the usual level of volatility for the EUR / USD pair is about 40-50 points. Experts explained the strengthening of the euro and the temporary weakening of the greenback as well as panic moods against the coronavirus epidemic.

Experts added that the current European statistics, initially could not affect the dynamics of the euro, since it did not carry a significant financial burden. At the same time, the German labor market sank slightly but somehow did not lose optimism. According to Ifo, in February 2020, the employment indicator in Germany fell to 98.1 points compared with 99.6 points recorded in January. During the reporting period, the sentiment index in the eurozone economy increased to 103.5 points from the previous 102.6 points. At the same time, consumer confidence remained unchanged (-6.6), the business climate indicator grew to -0.04, and the business optimism index in the industry recovered by 1.2, reaching -6.1.

One of the key factors for the eurozone economy is the rate of lending to companies. Currently, it has remained at the same level, which also added confidence to the single currency. According to the ECB report, in January 2020, the growth of bank lending to companies reached 3.2%, while the annual volume of lending to households increased to 3.7% from the previous 3.6%.

The current situation turned out to be in the hands of a single European currency. The EUR/USD pair has entered an upward spiral and is not going to part with this trend. The rapid rise of the euro continues for the fourth day in a row. Many experts consider this upward movement corrective in relation to the three-week fall of the euro.

On Thursday, February 27, the EUR / USD pair was near 1.0983–1.0984, trying to go beyond this range. Later on, the tandem succeeded, and the upward trend continued.

Exchange Rates 28.02.2020 analysis

Morning of February 28, the pair began with a brisk rise to 1.1003-1.1004. The psychologically important level of 1.1000 was overcome, and the tandem abruptly went uphill.

Exchange Rates 28.02.2020 analysis

Currently, the EUR / USD pair is trading near the levels of 1.1025–1.1026, rushing to peak values. Basically, the tandem succeeds. However, experts do not rule out a downward correction of the pair in the near future. If stable demand for the euro continues, the next important resistance levels will be 1.0980 and 1.1015.

Exchange Rates 28.02.2020 analysis

The unstable situation on world markets and the current dynamics of the pair are forcing many analysts to reconsider their previous forecasts. For example, currency strategists at Wells Fargo, recommend selling a single currency, explaining this by noticeable deterioration in economic prospects in Europe. Experts are sure that in the near future, the economic activity of the eurozone will suffer greatly due to the COVID-19 epidemic. In the case of the active spread of coronavirus in Germany and France, the risk of negative economic growth in the EU will increase significantly. Such a development will become positive for the euro, which has recently been used as the financing currency in carry trade strategies. Wells Fargo believes that leaving risky assets will help strengthen the single currency. This situation should be used for profitable sales of the euro, experts sum up.

Larisa Kolesnikova
Analytical expert of InstaForex
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