Is there a path to recovery manifesting for the Euro? Despite the dollar’s safe-haven status, EUR/USD has been edging higher with the recent flow of positive news coming out of the Eurozone, amid hopes of a vaccine, reopening and more.
6 reasons to potentially favour Euro gains in the short-term:
1. Finally some encouraging COVID-19 Numbers
In March Europe became the second epicentre for the COVID-19 pandemic, and since then European news has been overwhelmingly negative… until now. Germany, the heartbeat of the EU economy, reported that Coronavirus cases had risen by a mere 0.2%. Furthermore, Italy recorded its lowest number of deaths since March and Spain have completed a week with less than 100 deaths for the first time in over 8 weeks.
2. Borders set to Reopen
Many EU countries have continued reopening their economies and are moving closer towards reopening their borders as well. With vast amounts of the EU population dependent on seasonal travel and tourism, this is seen as a major economic driver in stimulating the European economy. Germany is set to remove travel warnings by the middle of next month with Spain to follow suit from July 1.
3. An ECB Masterpiece
François Villeroy de Galhau, a member of the bank’s Governing Council, described the latest bond-buying scheme as a “masterpiece”. And it seems as though many investors also agree. The Pandemic Emergency Purchase Program (PEPP) stands at €750 billion and many expect the Frankfurt-based institution to expand it next week.
4. EU fund Optimism
The ‘Frugal Four’; Austria, Sweden, Denmark and the Netherlands seem to be losing momentum, with Austria now open to accepting grants from the new EU recovery fund. Together, these four opposed the Franco-German plan to grant (not loan) money to the hardest-hit countries. It seems the €500 billion programs now may have a chance of passing in Brussels.
5. A Vaccine
The safe-haven greenback could also be affected by hopes for a new COVID-19 vaccine. American firm, Novavax, will start human trialling in Australia, with results due out in July. However, it seems to be following in the same footsteps as the Moderna vaccine, which announced progress, yet sentiment fizzled when scientists were frustrated by the lack of details. Will this happen again?
6. Trade War? Cold War? Who knows?
The continued tension between Beijing and Washington shows no signs of slowing, although both countries continuing to honour the trade deal. This has seen the market temporarily ignoring Sino-American tensions, although this could change at any moment.
Even though we are in times of distress, the safe-haven USD might not perform as anticipated against the Euro. The dollar has no upside, where the Euro is buoyed by plenty of reasons to rise. Watch this space.