Summer trading conditions may have started, but the demand for Euros has not disappeared. The European summer months of June, July, and August are usually responsible for a decline in volatility and FX market activity.
This time so far is different, as the coronavirus pandemic affects holiday-makers, leading to fewer people taking vacations. No less than twelve out of thirteen EUR crosses had positive FX returns on a volatility adjusted analysis. In contrast, only six out of twenty-eight USD crosses had a positive return.
Euro Pairs In Bullish Trends
At the start of the coronavirus outbreak, investors increased their USD exposure in search of safe-haven. The dollar rose across the FX dashboard, having no rival, despite the Fed providing massive liquidity to the financial system.
The EURUSD was particularly hit at the start of the crisis. With two of the largest Eurozone economies (i.e., Italy and Spain) in lockdown, the EURUSD fell below 1.08 and had a hard time bouncing.
The ECB’s crisis measures were a game-changer for the Euro and for investors’ perspective. The PEPP and TLTROs programs proved their efficiency in improving financing conditions for governments, firms, and banks in the Eurozone. Moreover, the expected side effects of price stability and economic growth further explain the sudden interest in the common currency.
Not only the EURUSD rose from its lows. The EURGBP is on a tear higher, trading well above 0.91 today on the back of strong Euro demand, rather than a weaker pound. It started trending higher from 0.86 in mid-March, following on the EURUSD footsteps. Another important Euro cross, the EURJPY, surged from 116 area to well above 123, before correcting back to 120.
They all show strong demand for Euro and offer an explanation for the recent overnight FX returns revealing investors’ interest in Euro assets. This week we have the chance of seeing if the trend persists or will fade away, as the NFP data may be a game-changer.
What is interesting is that the flight to the Euro comes at a time when the world’s USD liquidity is shrinking, and the world prepares for the US presidential election. By divesting USD to EUR, investors seek to diversify their portfolio ahead of the election data.
1.13 proved to be strong resistance for the EURUSD in the early days after Trump’s election. Will it continue to provide resistance at this election too?