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The euro is set to fall if the ECB adds monetary stimulus. A downfall is likely also if Lagarde passes the ball to politicians. EU leaders are the only ones with powers to lift the euro with massive fiscal expenditure, in the opinion of Yohay Elam from FXStreet. 

Key quotes

“No action – EUR/USD declines: This scenario has a medium probability.”

“10bp rate cut – EUR/USD falls significantly: This scenario has a high probability as it would be in line with market expectations.” 

“Ramping up QE – EUR/USD tumbles but could bounce: This scenario has a low probability as it could be too much to stomach for the hawks.”

“The ECB’s tools were exhausted before the coronavirus crisis and governments have a much bigger role to play in mitigating the economic fallout. The ECB has three options, all euro negative, at least in the short-term.”

 

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