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Why Euro Could Still Hit 3-Year Lows, Chinese GDP Next

By Kathy LienForexApr 16, 2020 06:09PM ET
www.investing.com/analysis/why-euro-could-still-hit-3year-lows-chinese-gdp-next-200521857
Why Euro Could Still Hit 3-Year Lows, Chinese GDP Next
By Kathy Lien   |  Apr 16, 2020 06:09PM ET
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If there’s one thing that’s certain in forex, it is that the U.S. dollar is king. The greenback traded higher against most of the major currencies despite another round of worrisome data. More than 5.2 million people filed for jobless claim benefits last week, housing starts fell by the largest amount in three decades and the Philadelphia Fed index hit a 45-year low of -56.6. Yet, the data wasn’t as terrible as the market had feared. Economists were looking for claims to rise by 5.5 million with investors bracing for another 6 million print. Building permits also fell less than expected. However, the reaction in equities and currencies confirms that other investors are not optimistic. In fact, the primary reason for the dollar’s strength is ongoing pessimism. 
 
For the past few weeks, we’ve been talking about why the greenback rises on good news and bad because investors perceive the outlook for the rest of the world to be worse. This is one of the reasons why the euro could test its 3-year low of 1.0636 versus the U.S. dollar. While Europe slowly crawls out of the depths of the COVID-19 shutdown, the region was the second major hotspot, which means economic data will worsen more quickly. We’ve mostly seen February and March data, such as this morning’s Eurozone industrial production numbers, which showed a modest 0.1% decline in February. The April numbers will be ugly. European nations are also restarting business activity sooner than the U.S., which can be positive or negative for the currency depending upon whether they learn from Asia’s mistakes or see a second wave of cases. 
 
There’s still a lot to be worried about for the U.S., especially after the small business loan program, which officially ran out of money today. Aside from the loans running dry, the distribution is running weeks behind. Most small business owners are reporting that money has not been received and the longer this continues, the greater strain it puts on the economy and the longer it takes for recovery.
 
The Australian dollar’s reaction to last night’s labor market numbers is another example of investors taking good data with a grain of salt. Economists were looking for the country to shed 30,000 jobs, but instead Australia added 5,900 jobs. The unemployment rate also ticked up to only 5.2% against 5.4% forecast. The data could have been much worse but lockdown rules did not really begin until the fourth week of March in Australia, so the bulk of the job losses would have been in April. 
 
The Australian and New Zealand dollars should remain under pressure ahead of key Chinese data. First quarter GDP, industrial production and retail sales numbers are scheduled for release. Economists are looking for GDP to contract by 12% in the first quarter, but smaller declines are expected for retail sales and industrial production. We haven’t seen a double-digit decline in quarterly GDP growth for China since its economic reforms in the late 1970s. The real contraction is probably much worse than 12%, and it will be interesting to see if they show that deterioration or try to show a more moderate slowdown. 
Why Euro Could Still Hit 3-Year Lows, Chinese GDP Next
 

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Why Euro Could Still Hit 3-Year Lows, Chinese GDP Next

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Comments (12)
Chris Black
ChrisBlackforex Apr 17, 2020 6:54AM ET
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Ms.Kay Thanks for your Work? Clear & Down to Earth Analyst
CHIN TUN KOH
CHIN TUN KOH Apr 17, 2020 4:32AM ET
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You are my most credible FX analyst. Keep up your fantastic job.
sina sadeghi
sina sadeghi Apr 17, 2020 2:43AM ET
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why at begining of asia session nzd/jpy had strong rally?
Elias T D
Teedee Apr 16, 2020 7:55PM ET
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Kathy! Very reliable to a great extent.
Loutchy Mattei
Loutchy Mattei Apr 16, 2020 7:34PM ET
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@Michael Leffler - (currencies trade relative to each other)? could you elaborate more on that please? Thanks
Leroy savoie
Leroy savoie Apr 16, 2020 7:10PM ET
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There is a lot of correlation with Dax and the  Futures market it's all up. Is that going to be A consolidating market for the rest of the week
Satish Kumar
Satish Kumar Apr 16, 2020 6:43PM ET
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thanks Kathy
Wilson Billabong
WilsonBillabong Apr 16, 2020 6:30PM ET
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So, what's next?
peter king
peter king Apr 16, 2020 6:26PM ET
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EUR will go up
Gid Keane
Gid Keane Apr 16, 2020 6:26PM ET
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Why Peter King? Give me a reason why it'll go up. I so want to plow all my money into the EUR going up. Especially against the JPY.
Alberto Ramos
Alberto Ramos Apr 16, 2020 6:19PM ET
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thanks Kathy
일권 손
일권 손 Apr 16, 2020 6:16PM ET
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I love your articleIt is so informative and gives insight!
Νικολας Μαχαιρας
Νικολας Μαχαιρας Apr 16, 2020 6:16PM ET
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Why the dollar become stronger?I mean with all this stimulus package and 2.2 trillions usa maybe will have a hyperinflation.Sorry if my engilish is bad.
Plamen Yankov
Plamen Yankov Apr 16, 2020 6:16PM ET
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cause its all made to take your money thats why
Michael Leffler
PeerGroup Apr 16, 2020 6:16PM ET
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currencies trade relative to each other.  their country's perceived and real economic strength and policy going forward.  and their country's relative safety both present and in the future.  everything else is fear speech, conspiracy theory, and noise.
 
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