The EUR/USD is around the exchange rate of 1.09 when the Asian session takes place on Tuesday (5/5). The Euro had also weakened on Monday to close a decline of 0.67%. News about the Euro has caused the EUR/USD to fall deeper and make Monday the biggest decline since April.
The Euro weakened after the German Constitutional Court ruled that the Bundesbank had to stop buying government bonds if the European Central Bank couldn’t prove that this was necessary. This unsettles several market participants who previously felt optimistic because of the ECB's latest bond purchase program worth 750 billion Euros.
EUR/USD dropped 0.7% to $1.0826 shortly after the verdict was announced. The currency pair is still in the path of the biggest daily decline since early April. When this news was written at the opening of the Tokyo session Wednesday morning, EUR/USD was trading in a low range of 1.0839.
"The market does not seem to like anything that cannot be fixed by the ECB, but given the current conditions, if likened to a road, then it (German Constitutional Court policy) is a pretty high-speed bump," said Andrea Cicione, TS Lombard analyst in London.
"People like us have to accept the decision, try to understand what it means for the European Central Bank (ECB) policies. While that is happening, the market is being filled with uncertainty, so that is what causes them to react negatively."
Market Analysis of EUR/USD Several Days Ahead
EUR/USD is currently observed to be in the range of 1.0844 or 0.55 percent lower at 21:55 IWST on Tuesday (5/5) during the negative intraday bias during trading below the level of 1.0880 to test the support of 1.0800 to 1.0770.
The latest positioning data shows that Euro's bullish bet has been at its biggest level for almost two years. However, the Euro weakened more than 5 percent from 1.15 per US Dollar, the one and a half year high level reached in March.
Nomura's analyst team recommends short positions against EUR/USD, with the expectation that the pair will weaken to 1.06 in the next few months. On the other hand, analysts from Societe Generale attributed the weakening of the Euro to the strengthening of the US Dollar index.
According to Kenneth Broux, the weakening of the Euro against the USD illustrates the challenges of the ECB that aren’t the same as the Fed. Unlike the ECB which tends to be impeded by Germany, US states don’t have the power to reject the Fed's current quantitative easing policy.
The Lockdown Opening is Expected to Boost the Euro Again
Until now, interest in the strengthening US Dollar is the reason for the EURUSD to continue to decline. Moreover, the Eurozone economy also continues to experience a deeper decline. However, with the loosening of the locking up in several Eurozone countries, it’s expected to be able to reduce the slowdown.
German PM had permitted small shops to resume operations. It was even reported that the German PM was ready to approve a more significant easing in locking the area. Reporting from Reuters, the possibility of the German PM will permit for large stores to start all its activities.
News about the Euro regarding the easing of locking the region could help the Euro currency to strengthen again. Apart from the non-data side, during the European session later in the day, the EURUSD pair will also focus on the Eurozone PPI data release.
France as one of the European largest economies also returns to normal with the drop in Covid-19 statistical data. This encouraging development has increased pressure to reopen the economy while fears of a second wave remain. Investors have reacted to the economic damage and the euro has been depressed.
Technically, the EUR/USD still has a chance to rise even though it has already been shrunk, with the nearest "resistance" waiting at 1.0970. If successfully passed, It’ll continue to 1.0995 then 1.1020. While the closest "support" is waiting at 1.0890. If successfully passed, it’ll continue to 1.0860 then 1.0810.
