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Andreas Zanin
Analysis | July 15, 2021

Outlook and Forecast: EUR – The Myth of the Recovery & Euro Weakness Ahead

In previous articles, we have been heavily bearish of the Euro and its had a big fall but we still expect more downside. Our view of the fundamentals, sentiment, and technicals below.

A lot of economists are saying the euro will rally as the economic recovery accelerates but the eurozone is unlikely to make a broad-based recovery. There is no broad-based recovery in euro zone at present, the ECB can’t cut stimulus or raise rates and the market is looking for stimulus to be cut this year and then a rate rise next year – Our view is this won’t happen.

The great European recovery the media talks about is a myth and not supported by the facts – the European economy is struggling, and many countries have just entered new lockdowns which will slow the economy further. While travel and restaurant bookings in the US are back to pre Covid-19 levels, Europe remains struggling which we can see on the chart below and also the big picture chart from Nordea.

The TME uses Spain as an indicator in terms of the European recovery when it comes to traveling etc. Spain is massively tilted to the tourism sector, and the summer income is vital to a lot of businesses. The latest fall, absolutely as well as relatively, shows the state of the European recovery well. The IBEX vs SX5E ratio is touching the lowest levels since 2004…

What about the strength in the DAX? “People talk about DAX trading at recent highs and that Europe is doing great, but look at performance in terms of dollars and you understand what is going on…” (TME)

If Euro zone is doing so well and on the road to recovery why is the central bank buying all of Italy’s debt?

The southern nations of the zone Italy, Spain, Portugal and Greece remain in deep trouble and will get no big bonus from tourism this year which they desperately need. so no recovery is coming to match the US. Euro for us is going down to major weekly support at 1.1400 – resistance levels on the upside on both daily and weekly chart are 1.1900 and then 1.200. We would sell any rallies towards 1.1900, stop behind 1.200 and look for a move down to 1.1400.

 

 

Research provided by LearnCurrencyTradingOnline.com

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