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EUR/USD: Consolidation Likely To Follow Gains

Jun. 12, 2020 12:19 PM ET
Discount Fountain profile picture
Discount Fountain


  • The EUR/USD has seen a rebound to the upside this month.
  • Nonetheless, deflation in the euro area remains a concern.
  • I envisage that the currency will consolidate around the 1.10 mark going forward.

Last month, I made the argument as to why I maintained a bearish view on the EUR/USD.

With a German court ruling that the ECB had not acted proportionally in its asset purchase programs – this would limit the ability of the Bundesbank to continue participating in the central bank’s asset purchase programs.

However, this does not appear to have had the negative effect on the euro that markets might have initially expected. In the past month, the EUR/USD is up to 1.1378 at the time of writing.

Source: investing.com

Brexit has been eclipsed by COVID-19 this year, but it still remains an important consideration nonetheless. Specifically, Britain reportedly has until the end of June to extend the deadline in the case that a deal cannot be reached – otherwise Britain will start trading with the EUR on WTO terms come 2021. In this regard, the true Brexit may yet still be on the way.

However, the British government has been very forthright that an extension will not take place. More specifically, with the economic fallout from COVID-19 and the associated drop in travel and cross-border trade, there may well be a growing sentiment that the UK now has effectively nothing to lose by opting for a no-deal, which serves the aim of allowing that country to have maximum flexibility in negotiating new trade deals with other nations.

From this point of view, I do not see much risk that the EUR/GBP will necessarily decline by a great deal from this point, if at all. We have seen the EUR/GBP rise even more significantly than the EUR/USD in the past month:

Source: investing.com

With the economic impact of COVID-19 becoming clear – it is also quite possible that markets have already priced in a no-deal into the currency. While there was significant concern

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I am an independent investor with an interest in analyzing stocks across the consumer, finance, telecommunication, and travel sectors. As a data scientist, I also have a great interest in using data tools to better understand a company's financial position.Some examples include:- Aggregating quarterly churn and ARPU data for Deutsche Telekom (DTEGY) and analysing trends over time using SQL: https://seekingalpha.com/article/4516805-deutsche-telekom-growth-potential-remains- Building a Monte Carlo simulation in Python to analyze loss ratios for Zurich Insurance Group (ZURVY): https://seekingalpha.com/article/4459821-zurich-insurance-stock-solid-insurance-company-still-faces-risks- Examining ADR and RevPAR trends by brand for Hilton Worldwide Holdings (HLT) using SQL: https://seekingalpha.com/article/4517248-hilton-worldwide-holdings-an-analysis-of-adr-and-revpar-trendsDisclaimer: All of the author's articles are written on an "as is" basis and without warranty, with no guarantee of accuracy or completeness. They represent the author's opinion only and in no way constitute professional investment advice. It is the responsibility of the reader to conduct their due diligence and seek investment advice from a licensed professional before making any investment decisions. The author disclaims all liability for any actions taken based on the information contained in any articles published.

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