Germany is trying to fend off demands for mutual debt, which threatens integrity. The worsening political situation may weigh on EUR/USD, potentially sending it to parity, according to FXStreet’s analyst Yohay Elam.
“Coronabonds are not just a new buzzword but are an essential tool to mitigate the economic fallout of coronavirus in the old continent.”
“Mutual guarantees would show investors the unity of the old continent to confront the crisis. The private sector would jump in if it knows that there is a joint effort.”
“Frustration is growing in Spain and Italy, with France also growing impatient. Leaders of these countries could become more vocal, putting additional pressure on Berlin. Escalating tensions would then weigh on the euro.”
“If the situation worsens, investors may fear a re-run of the 2012 crisis. In this scenario, which seems far but events are moving fast, markets would flee from the euro, potentially pushing EUR/USD towards parity.”