Euro is Falling Against the Dollar, as EU Faces a Recession

Ibeth Rivero

EuroThe world's most popular currency pair has been on a losing streak from the beginning of the week, as the Euro has receded by 0.99 percent against the US dollar, after gaining 4.12 percent during the previous week.

I think that it's safe to assume that the bears are currently dominating in this market due to two main factors. The first one is the economic outlook (which is heavily influenced by the spread of the coronavirus epidemic) and the second one is the increasing demand for the greenback, which is being pushed by the expectations for a global economic recession, as the dollar tends to outperform riskier currencies in situations like these, especially the currencies of countries that heavily rely on their exports.

The Eurozone is being heavily affected by the spread of the coronavirus epidemic, on both health and economic planes. Italy is now officially the most affected country, with about 105,792 confirmed cases and 12,428 mortal victims, overtaking China's death toll, followed by Spain which currently has 95,923 confirmed cases and a death toll of 8,464. Those figures have made many individuals and analysts consider Europe as the current epicenter of the pandemic.

From an economic point of view, the Eurozone is not facing the best situation either. The European Commission expects a deeper recession than the 2009 great recession, linking it with the supply disruptions, as they are affecting the global value chains and the countries' production capacity. We still have not gotten official and clear data regarding the Eurozone's economic performance on the first quarter, but we've already learned that the area's business activity may have decreased dramatically since the beginning of the outbreak, as the area's preliminary composite PMI went down to 31.4 in March, falling dramatically from February's figure.

So far this week, the Eurozone economic data turned out to be disappointing. On Monday, the markets learned that the Eurozone economic sentiment it's currently not in its best shape, as the economic sentiment indicator fell dramatically in both the eurozone and the European Union. The same happened with the business sentiment indicator, as the manager's production expectations crashed, as well as with the employment expectations indicator. On that day we also learned about Germany's preliminary consumer price index, which stood at 1.3 percent in March falling from February's 1.7 percent (year-to-year).

On Tuesday, the German Statistics Office released Germany's unemployment rate, which remained almost steady in March at 5 percent. Eurostat released the preliminary inflation figures as well, standing at 0.7 percent and showing a sharp drop from the previous month's figure, which was at 1.2 percent.

Regarding the dollar demand, it should be noted that it has been more or less solid since the beginning of the week, compared to the previous week's performance. The US Dollar Index, which measures the greenback's performance against a bundle of currencies, has advanced 0.69 percent since Monday despite suffering a setback yesterday. This is remarkable given the previous week's figures, as the dollar lost 4.41 percent against the other currencies.

Now the expectations for the Euro traders may worsen, as Italy's Economy Minister Roberto Gualtier recently announced that they expect a 6 percent fall in the country's 2020 GDP. Germany will most likely suffer the same fate, as Germany’s council of economic advisers consider that a recession is now unavoidable, foreseeing a 5.4 GDP contraction. In any case, they must pay attention closely to the dollar's performance this week, as well as to the US Initial Jobless Claims data which is being released on Thursday. At the end of the week, IHS Markit is releasing the Eurozone's final composite PMI index, which is also relevant to those who trade based on the fundamentals. Finally, the non-farm payroll (NFP) report will be out in the US on Friday, which will elucidate the state of the job market in the US, and is expected to show a distressing amount of new jobless claims which may complicate matters further.

About the Author
Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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