08.04.202010:53 Forex Analysis & Reviews: Euro supports: coronabond and loans

The European economy, which is experiencing an unprecedented storm due to the outbreak of the COVID-19, is forcing EU leaders to find ways to restore it. One of the options for solving the problem may be the so-called "coronabond", analysts say.

According to experts, the introduction of new anti-crisis bonds may open support to the current state of the euro. Last Tuesday, April 7, a meeting of the leaders of the Eurogroup was held, where issues of emergency assistance to the economy of the Euroblock were resolved. During the meeting, problems related to the issuance of common debt securities needed to restore the economies of European countries and protect against the effects of the pandemic were discussed.

However, when implementing such a scenario, pitfalls must be taken into account, analysts warn. As they include the possibility of sharp subsidence of the single currency. It is difficult for experts to predict how the euro will react to the introduction of "coronabond", but they do not exclude the negative consequences that might manifest now and in the long term.

According to preliminary calculations, the euro may weaken strongly if the financial authorities of the eurozone refuse to launch general Eurobonds. Many representatives of the Eurogroup offer an alternative option - to open credit lines of the European Stability Mechanism anti-crisis fund. At the moment, opinions about the effectiveness of new bonds and potential loans are divided. Some analysts are sure that the European currency can only be helped with a combination of both options.

According to Reuters, the EU leaders plan to agree on a package of financial assistance worth about € 500 billion for this week. It is expected that this will be an impressive help in fixing the repercussions done by the COVID-19. Moreover, the issue of Eurobonds is still relevant, although it is highly likely that other financial instruments will be used.

The implementation of the large financial assistance offered by the monetary authorities of the eurozone implies the formation of reserve credit lines, which will take up to 2% of the GDP. According to preliminary estimates, this will amount to about € 240 billion. The advantage in obtaining tranches will be received by the healthcare sector and a number of economic enterprises responsible for the life support of the eurozone. Economists said that an additional bonus from the European Commission will be the allocation of subsidies for the formation of wages to those employees who have suffered from the pandemic.

Meanwhile, the euro was able to gain its strength after a relatively positive news that came this week. According to analysts, the EUR / USD pair showed corrective movements on Tuesday which led the pair to break the resistance level of 1.0900. The "bulls" took the lead during the bidding which rushed to the maximum mark of 1.0970. However, it was not possible to gain a foothold in the conquered positions. The pair again declined on Wednesday, opening at 1.0870, but then dropping even lower. At the moment, the tandem runs in the range of 1.0855–1.0857, trying to minimize the losses incurred.

While the euro is fighting for a place under the financial sun in the global economic system, the greenback still remains to be the defensive asset. However, the US monetary authorities, along with the regulators of other countries, intend to slightly weaken its position. At the same time, experts draw attention to the lack of a significant reaction regarding data on the American labor market. According to analysts, this indicates a gradual resurgence of risk appetites among traders and investors who are more interested in risky assets than in defensive ones.

According to experts, the upcoming support measures will provide invaluable assistance to both the European economy and the single currency. They are counting on the gradual restoration of the euro in the medium term, due to a timely set shoulder in the form of general financial injections.