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Analysts at MUFG Bank, point out that upside risks for the euro include further progress towards re-opening the Eurozone and global economies; a cure and/or vaccine would likely favour a higher EUR/USD rate on balance as well, and a fiscal union in Europe by allowing fiscal transfers to support the recovery in Eurozone economies most affected by the coronavirus. 

Key Quotes:

“There is no evidence yet in Europe that the reversal of lockdowns is resulting in a pick-up in the growth rate of new COVID19 cases. It provides confidence that lockdown measures can continue to be eased in the month ahead although it is still early days. At this stage, we see no clear reason why the reversal of lockdowns should favour the euro over the US dollar or vice versa.”

“Until there is more clarity over how the ECB/Bundesbank intends to resolve the issue having been given a three month deadline to justify asset purchases under their Public Sector Purchase Programme (PSPP). While the ruling does not concern current COVID-19 policy support measures directly including the Pandemic Emergency Purchase Programme (PEPP), it still poses downside risks for the euro if not resolved in a timely and satisfactory manner. “

“There have been some encouraging developments recently indicating that European governments are moving closer towards harnessing joint fiscal capacity to provide sustained stimulus to support the economic recovery.”

“The EU Commission is soon expected to outline their recovery fund plan ahead of the EU summit scheduled on 27th May. There are still some doubts over whether the proposals will be watered down, and if EUR500 billion is sufficient support. Nevertheless, further progress towards a fiscal union in the month ahead could help to lift the euro.”