EUR/USD has hit a new low at 1.1090, crashing some 240 off the highs.
Here is why and levels to watch.
US President Donald Trump has failed to impress investors by refraining from announcing fiscal stimulus in the wake of the coronavirus crisis. That sent markets tumbling down and added to fears.
The euro was especially hit by the president’s announcement that flights to and from Europe are canceled.
2) Lagarde’s misstep
Negative interest rates are hurting banks’ profits and are unhelpful to the economy. The European Central Bank’s decision to leave rates unchanged and only to add QE and new loans makes sense. The euro initially advanced in response to these measures, combined with some German readiness to spend.
However, answering a question, ECB President Christine Lagarde said that the bank is not there to control spreads. With Italy ratcheting up expenditure, her lack of commitment triggered a sell-off of Italian debt. The spread between the eurozone’s third-largest economy’s BTP’s and German bunds widened,
And that weighs on the euro.
3) Rush to the dollar
The greenback’s previous spells to the downside were accompanied by falling yields. However, investors may have exhausted this trade, with returns falling to extremely low levels.
Moreover, money is rushing to the safety of the US dollar from all over the world – emerging markets, gold holdings, and even Bitcoin. The traditional safe-haven such as the yen and the yellow metal are in decline alongside stocks – a rare feat which is evidence to the greenback’s strength.
Euro/dollar has dropped below the 50 Simple Moving Average on the four-hour chart.
1.1040, 1.10980, and 1.10880 are next.