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After a sharp fall last week, theUS currency strengthens again on Monday.
According to experts, such movements, along with another landslide drop in oil, indicate that fears about the coronavirus have returned, so investors are preparing for a long period of uncertainty.
"Now that the deficit in dollar financing has somewhat eased, the emphasis is shifting to a large extent towards damage assessment. The viral threat is still in the air, and this is averse to risk, "said Moh Siong Sim, an analyst at The Bank of Singapore.
Over the past two weeks, the greenback first showed the largest weekly growth after the 2008 financial crisis, and then the largest weekly drop since 2009. Signs of financial stress decreased, but not completely.
"Avoiding risk is more important for the greenback than traditional differences in interest rates. For the US dollar to abandon some of its recent gains, investors will need to change their preferences back in favor of a wider basket of safe-haven assets, "said Standard Chartered strategists.
Having won back 50% of the losses of the previous two weeks, the EUR / USD pair returned to the level of 1.1100, around which it has been turning for many months, starting from the end of July 2019. This suggests that the market does not yet represent what else can be expected from the coronavirus and from the governments that have come to grips with it.
On the one hand, there has been a rapid increase in the number of cases in the United States, and it is not known whether the American administration will have the strength and ability not only to take control of the situation but to seriously improve it. A significant part of the money that the Federal Reserve pours the country's economy goes to the payment of unemployment benefits and one-time payments to individuals who are in quarantine and are not able to spend it. As a result, in the near future, theses funds run the risk of not reaching the real sector of the economy.
US Treasury Secretary Steven Mnuchin is optimistic that the current situation is not yet a financial crisis. At the same time, Fed Chairman Jerome Powell already agrees that the American economy may well be in a recession, and the virus now dictates the agenda. Therefore, it cannot be ruled out that a severe recession at some point can develop into depression. The head of the Federal Reserve Bank of Dallas, Robert Kaplan, argues that in the second quarter, the US GDP runs the risk of falling by 20%.
On the other hand, the situation in Europe does not look the best. Some analysts called the results of the EU summit on Thursday, March 26, "just awful." EU leaders have not been able to agree on joint actions to support the region's economy. Germany still opposes the idea of issuing European bonds, while France, Italy, and Spain are actively advocating for it. Meanwhile, the ECB is struggling to maintain stability in the euro area. According to a number of experts, such disunity of the EU member states greatly limits the ability to strengthen the European currency.
Thus, news about the coronavirus will continue to play a key role in the dynamics of the pair. Given the continuing uncertainty surrounding the spread of the virus and the extent of its impact, we can expect the consolidation of EUR / USD in the short term in the range of 1.0960–1.1210.
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