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Eurozone’s larger covid activity hit has not materially upset EUR/USD or the EUR TWI, beyond a quick flush down to three month lows near 1.16 in late October/early November. The eurozone is making much more progress in flattening their outbreak curve than the US, a development that should tip growth momentum back in EUR’s favour in coming weeks, according to economists at Westpac.

Key quotes

“The one month change in new cases per million peaked in excess of 300 in November in both regions. But the growth in new cases has since ebbed sharply in the Eurozone, while the US has not seen any meaningful moderation.”

“While the latest US and the Eurozone outbreaks are similar in scale, mobility took a much bigger hit in the Eurozone. Apple mobility is down about 35% in the Eurozone as of late November compared to levels a month ago, much steeper than the US’ 15% decline. But, the Eurozone’s more successful virus containment can be expected to generate a more meaningful bounce back in mobility. Against that, a growing number of US counties and states have been reimposing curfews and closures so US mobility can be expected to take a further hit in coming weeks.”

“Markit’s November Eurozone services PMI was a grim 41.3, a stunning 16pts+ below its US counterpart, due mainly to Europe’s tighter restrictions. But come December and in early 2021 Eurozone’s underperformance can be expected to diminish, possibly markedly.”

“While EUR/USD has recovered back toward range highs the EUR TWI has not and has room to recover in coming weeks if mobility and activity recover in line with their success in stemming the latest outbreak.”

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