The euro will touch 1.02 dollars for the virus but it will avoid parity, according to Bank of America
The euro again occupies a prominent position in the forecasts of the analytical houses as its technical aspect becomes increasingly worrying and neither the macro nor the economic policies, and even less the geopolitical aspects play in its favor. The Eurozone after the virus is a gloomy place where countries are on the verge of collapse, the shock in GDP can be up to 15%, if we listen to the president of the European Central Bank, Christine Lagarde, and the leaders do not agree on how to approach reconstruction. With this scenario, analysts assure that the community currency will depreciate and parity returns to the scene. However, Bank of America believes that, once again, the currency will save the furniture and end the year at $ 1.05, with a visit to the $ 1.02 level.
The tie of the euro with the dollar is one of the most hackneyed predictions in recent years. Every time it has been put into play, the resilience of the euro zone currency has finally been demonstrated, but the current crisis is an unprecedented factor that could cause this time to be true. In the short term, the dollar has everything going for it to resume its appreciation as the markets turn their attention to the brutal blow to the economy. "Economic and financial market shocks are likely to reverberate, leading to a increased demand for the ‘green ticket”, the economists of the American bank assure.
Thus, everything points to that this is directed to the important support that it presents in the lows of the beginning of 2017 ($ 1,03394) and "that is where the key lies for the coming months," warns José María Rodríguez, analyst at 'ForexNews.online'. “The drilling of this support, with its rebounds against trend or reaction phases, may project the euro, in the coming months, towards the important support that the base of the bearish channel confers, now in the approximately $ 0.92 / euro", Add. Therefore, in his opinion, “parity is a totally feasible scenario today, since it is also only a round and psychological level. It is not a real support at the moment ”.
But Bank of America anticipates that sales “slow down around $ 1.02 by mid-year”, from where it will rise in the second half to $ 1.05, the price at which it will close 2020. However, they also acknowledge that the market will be very aware of the developments of the pandemic and macroeconomic indicators, although movements in currencies "They should moderate by the end of the year."
In this sense, they explain that the global macroeconomic contraction is a fact, but it seems that the US recession will be mitigated thanks to the efforts of the Federal Reserve (Fed), "Including a balance sheet that is likely to double this year as a result of all its programs." While this may seem negative for the dollar, central bank action often ends up supporting the economy and thus the currency in times of crisis. In fact, they project that US GDP will drop 6% through December, compared to the 7.6% they forecast in the Eurozone.
They also highlight that monetary policy alone "is not capable of changing the dynamics of an economy that has suffered a complete closure" and although they praise the action of the ECB and its purchasing program in the $ 750 billion pandemic, they criticize the lack of fiscal response. Euro economies have dedicated 2% of GDP compared to 9% of GDP that has been spent in the US.
NON-PAYMENT AND RECESSION: THE MAIN PROBLEMS
Along these lines, they charge against the steps taken so far by the European Union (EU) since “the use of the European Stability Mechanism (ESM) is largely irrelevant because the problem in this crisis is not the loss of market access , but deep recession and insolvency risks in some potentially systemic euro members. " In this sense, they underline their concern about the increase in debt, from already high levels, in the periphery regions, particularly in Italy.
Regarding future steps, they believe that the Recovery Fund could help, "but much will depend on its size, conditions and mutuality of the debt." And, as a culmination, they regret the lack of consensus to share said debt.
. (tagsToTranslate) euro (t) will touch (t) 1 (t) 02 (t) dollars (t) virus (t) but (t) will avoid (t) parity (t) according to (t) Bank (t) America ( t) Category: All (t) Category: Market Report (t) Category: Pulses (t) Category: Market Pulse (t) Category: Currency Pulses