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EURUSD forecast for 29.04.2020

April 29, 2020

April 29, 2020

Will the euro get a stab in the back?Dmitri Demidenko

The German Federal Constitutional Court  may turn the  Bundesbank

off from the game

The Fed can turn the bear trend in the US stock market up, but it can’t discourage the [EUR/USD][1] sellers. The huge flows of the cheap liquidity allowed the S&P 500 to go 28% from the lows hit in March. However, the impressive surge of the stock index didn’t result in the euro’s rally. The euro has many flaws that don’t allow using the increase in the global risk appetite and the lower demand for safe- havens.

Unlike S&P Global Rating, Fitch has downgraded Italy’s credit rating to “BBB-minus”, just one notch above junk, saying the downgrade reflects the impact of the coronavirus pandemic on Italy’s economic and fiscal position. The raring may still go lower if the government doesn’t realize the plan to reduce public debt to GDP. Nonetheless, Fitch changed Italy’s outlook to stable from negative, saying it sees European QE will hold the yields low, at leas t in the short term. The euro-area modestly reacted to the information that Christine Lagarde will announce the purchases of the “fallen angels” at the ECB meeting on April 30. However, the ECB can get a stab in the back from Germany.

Dynamics of Italy-Germany bond yield spread

![LiteForex: EURUSD forecast for 29.04.2020][2]

Source: Bloomberg.

On May 5, Germany’s constitutional court will issue a verdict on the legality of the European Central Bank’s program of asset purchases. In 2017, it assigned the responsibility to the European Court, which declared the QE legal in 2018 with the proviso that the central bank will observe all rules, including the key capital, issuance limit, and the eligibility requirements for securities. The pandemic made the ECB cancel the rules, which increases the risk that the QE will be declared illegal. The financial market will hardly ignore this news, as it will raise some questions, including the Bundesbank’s participation in the QE. If Germany’s constitutional court considers the factor of the coronavirus outbreak and turns a blind eye to the violation of rules, the [EUR/USD][1] bulls could go ahead.

Traders are not yet willing to sell the [EUR/USD][1], as the US stocks are rallying up amid the hopes for the soon reopening of the US economy and the trust in the Fed’s announcement that the extraordinary stimulating measures will continue as long as it is needed. The Federal Reserve has done more than other world’s central banks, which has reduced the stock market’s volatility and substantially improved the US financial conditions. Nonetheless, the Fed can’t make the Americans go to work.

Dynamics of sizes monetary stimulus

![LiteForex: EURUSD forecast for 29.04.2020][3]

Source: Financial Times

Dynamics of volatility and the U.S. financial conditions

![LiteForex: EURUSD forecast for 29.04.2020][4]

Source: Bloomberg

Due to the huge fiscal assistance, the average size of unemployment benefits increased from $378 to $878 per week. Half of the US workers earned less than $957 per week in the first quarter. Does it make any sense to stop the quarantine leave before August? If the U.S. economy is reopened slower than it was expected earlier, the S&P 500 will go down, being followed by the [EUR/USD][1] decline towards the bottom of the trading range of 1.065-1.115.

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Price chart of EURUSD in real time mode

![Will the euro get a stab in the back?][7]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  2. cdn.liteforex.com/cache/uploads/blog_post/eurusd/bonds-italy-germany-29-04-20.jpg?w=30&s=5b56d29d91866d1c717328351bfca54c
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  4. cdn.liteforex.com/cache/uploads/blog_post/eurusd/financial-conditions-volatility-29-04-20.jpg?w=30&s=90039d41d3f97ba34bf270a725145ef5
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