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The spreading coronavirus and its consequences have brought new uncertainty to a global economy that was already showing some signs of improving momentum. In this environment, the USD will remain supported, according to analysts at Nordea. 

Key quotes

“The Corona virus and continued weak Chinese figures will likely keep USD/CNY elevated until sometime during Q2. This is generally good news for long USD positions against EUR, AUD, GBP (etc) as well.” 

“We see a strong USD against most currencies in our forecast until at least mid-year. The Corona virus is more of an issue for the EUR than the USD given that the EUR is closer linked to world trade.”

“The Wuhan virus also increases the risk of a trade war 2.0 (since China simply cannot comply with the deal due to current shutdown), which we decide to reflect in 2021 forecasts through a lower EUR/USD forecast than seen earlier.”

“Our main market take away is that the US outperformance narrative will likely stay intact, since e.g. Germany is relatively worse off than US due to the Chinese close-down. This also leaves us in the upper part of the USD smile during Q1 and into Q2. USD stronger for longer.”