EUR/USD proves resilient to darkening outlook for eurozone recovery - MUFG

FXStreet notes that the euro has benefitted from the broad-based weakening of the US dollar so far this week. It has helped to lift EUR/USD back towards the middle of the trading range between 1.1600 and 1.2000 that has been in place since late July. The shared currency has held up well recently even as eurozone fundamentals have been deteriorating, as economists at MUFG Bank note. 

“The surge in new COVID-19 cases in the eurozone remains alarming. According to our calculations, the number of new cases per day in major eurozone countries has now reached almost 80K on average over the past week. It compares to an average of around 35K just over two weeks ago. Even in countries which had previously been more successful at the dampening the spread of COVID-19, new cases are picking up strongly with Germany reporting more than 10K new cases (12,331) for the first time since the pandemic started.”

“Despite yield spreads moving significantly in favour of the US dollar recently, the impact on EUR/USD has been limited so far. The resilience of the euro continues to signal that investors have more confidence in the euro following decisive action to address the negative fallout from the COVID-19 crisis taken earlier this year including setting up the European Recovery Fund.”

“There were further encouraging signs yesterday when the European Commission announced that it had issued a €17 B dual tranche social bond with €10 B due in October 2030 and €7 B due in 2040. It was the highest amount ever borrowed in the history of the EU. The EU welcomed the strong investor interest as further proof of the new-found interest in EU bonds which add to the attractiveness of the euro as the most liquid alternative to the US dollar. We view it is another positive signal that reserve holders are becoming more confident again in the euro.”