The EUR/USD Effect: It Ain't An April Fool's Joke

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 Source: European Commission Winter 2021 Economic Forecast

And after closing out the first quarter of 2021, Europe’s projected bellwether of GDP growth has made relatively little economic progress since November.

Please see below:

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Adding insult to injury, despite the EUR/USD shrugging off the revelation on Mar. 31, Europe’s second-largest economy is now back in full lockdown. Addressing the nation, French President Emmanuel Macron said that "it is the best solution to slow down the virus.” We could “lose control if we do not move now."

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Source: Sky News

Thus, can we finally stick a fork in France’s economic renaissance?

2. EUR/USD Sentiment Index Doesn’t Look Too Good

Adding to the EUR/USD’s bearish outlook, the currency pair’s sentix Sentiment Index – which is derived from a weekly survey of more than 5,000 private and institutional investors and reflects their expectations over the next month – has moved sharply lower.

Please see below:

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To explain, the blue line above tracks changes in the EUR/USD’s sentix Sentiment Index, while the gray line above tracks changes in the EUR/USD. If you analyze the right side of the chart, notice the large gap between EUR/USD sentiment and the underlying exchange rate?

Can you see one other time when the index was at similarly low levels while the EUR/USD was only after a relatively small decline? It was in the first half of 2018, so the above chart further validates the self-similarity in the USD Index between now and 2018. Since the USD Index soared in 2018, the same is also likely to take place this year.

With the performance of the EUR/USD often rising and falling with the sentix Sentiment Index, the divergence implies that there is still plenty of room for the EUR/USD to move lower.

3. Printing the Euro Like Crazy

Third on the docket, I warned on Jan. 22 that the European Central Bank’s (ECB) bond-buying program was likely to accelerate.

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Disclaimer: All essays, research, and information found above represent analyses and opinions of Matthew Levy, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be ...

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Erikas Ivan 1 month ago Member's comment

Thank you for helping me better understand the precious metal market recently. Your perception on precious metals just shows how experienced you're in this field, unlike permabulls that only rely on headlines.