Time To Buy Euros? Not Yet

Money, Money Laundering, Seem, Euro Bills, Currency

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One of the best performing currencies today was the euro. After selling off quickly and aggressively in the first week of March from a high of 1.21 to a low of 1.1835 the single currency quietly consolidated above the 200-day simple moving average as dovish comments from the Federal Reserve and overall demand for high beta currencies halted the slide in the currency. As tempting as it may be to pick a bottom in EUR/USD, now is not the time to buy.

The eurozone is mired in troubles. They’ve lagged the U.S. and U.K. in vaccine rollout and as a result of that delay, new coronavirus cases are on the rise, forcing countries across the region to tighten restrictions. Earlier this month, Italy locked down for the third time and over the weekend, France initiated a partial lockdown in 16 regions including Paris. This morning, Germany extended its current lockdown to April 18th as all 3 countries get hit by a third wave. These restrictions that began as early as December in some countries has and will continue to take a significant toll on growth. According to the Bundesbank, the German economy contracted sharply in the first-quarter – numbers that we will see next month. The European Central Bank knew this slowdown was happening and decided to accelerate asset purchases in March.

Looking ahead, Europe’s troubles aren’t expected to improve quickly. The decision by many nations to temporarily halt the AstraZeneca vaccine in early March created significant vaccine skepticism. With trust compromised it will be an uphill battle for these countries to reach herd immunity. Until that happens, the central bank will remain cautious, growth will be slow and the euro should underperform other currencies. Economists are looking for improvements in this week’s Eurozone PMIs and German IFO report but in light on more restrictions, the risk is to the downside for these reports.

Eventually, the vaccine rollout in Europe will gain momentum leading to a stronger recovery and at that point, EUR/USD could be a screaming buy. Until that happens, however, now is not the time to be going long euros especially as the gap between German and U.S. bond yields widen.

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