We all remember how, from late spring to mid-summer, the S&P 500 rally pushed up the EUR/USD pair. The pair then went from 1.08 to 1.18. The fourth quarter of 2020 is very similar to the second quarter. Will this story really happen again?
We are now seeing the US stock market begin to reverse the upward trend after the presidential election. Investors predict that Democrats will provide unprecedented support to the economy and pour huge amounts of liquidity into financial markets. It is also worth noting that in a period of uncertainty before the election, many investors were cached and are now beginning to return to risk assets.
In this situation, the US dollar is likely to increasingly lose ground against major world currencies.
What is happening now in Europe?
Coronavirus is spreading more and more throughout Europe, but this time the government is trying to control the situation. People continue to work and various quarantine measures are being introduced, but it can already be seen that the second wave of the disease is being controlled in a more organised way.
In general, the economy is not falling apart like it was in spring, and it is likely that in this condition Europe will be able to wait for a vaccine to help stabilise the situation.
Of course, the ECB does not like this kind of Euro at all, as the cheap Euro always supports exports and speeds up inflation. It is no accident that Christine Lagarde, in her last speech, confirmed the effectiveness of the emergency asset buyback programme due to the pandemic, as well as the anti-crisis early refinancing operations. From her words, we can assume that these actions from the ECB will continue in the near future.
Will the Euro go higher?
The ECB balance sheet is growing at a slower pace than the US Federal Reserve, so we can now assume that the EUR/USD pair has the potential to grow to at least the nearest level at 1.20, although the ECB will try to prevent this in many ways. But everybody remembers when the Bank of England’s monetary policy easing announcement led to the pound rising in November. The same thing could be repeated for the Euro.
Of course in the current situation a lot will depend on the state of the US financial markets, but the Euro bulls have a good chance of showing themselves.
What awaits us today?
08.45 Harmonised consumer price index in France for October
11.00 Eurozone GDP for Q3 and since the beginning of the year
14.30 US producer price index for October
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