Christopher Vecchio, from Dailyfx.com, said the euro has “lost ground versus every major currency” as he raised concerns over the future of the EU following weeks of wrangling between member states over how to pull the continent out of financial ruin in the face of the coronavirus. He said the COVID-19 crisis had brought “into question the long-term stability of the Europe project on the whole”.
He told Express.co.uk: “As all the attention has gone to global equity and commodity markets, the Euro has quietly been enduring a slow burn for the month of April, having lost ground versus every major currency.
“EUR/AUD is the worst performer, down by -5.57 percent and CHF is the best performer, down by -0.80 percent.
“Indeed, the coronavirus pandemic is proving to fray at the institutional bonds that tie the European Union’s 27 members together, once again bringing into question the long-term stability of the Euro project on the whole.”
Mr Vecchio warned of more testing times ahead for the euro as coronavirus continues to grip the continent.
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He said: “That the European Central Bank may be considering new programs that are not currently priced into the market suggests that there may be more weakness ahead of the Euro.
“Perhaps the most potent aspect of a potential stretch of Euro weakness anew is the fact that positioning has built up so dramatically in recent weeks, despite the fact that the Euro has been the worst-performing currency in April.
“According to the CFTC’s COT report for the week ended April 14, speculators increased their net-long Euro positions from 79.6K to 86.6K contracts.
“Oversaturated long positioning leaves the Euro at risk for a covering move that ultimately pushes the Euro lower.”
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It comes after the bloc’s executive estimated the global coronavirus outbreak could wipe off as much as a tenth of the continent’s economic output.
While the International Monetary Fund (IMF) expects debt in the 19 countries sharing the euro to jump by more than 13 percent of GDP to 97 percent this year as Europe-wide lockdowns cause an unprecedented 7.5 percent eurozone recession.
The IMF sees Greek debt rocketing almost 22 points to 200 percent of GDP this year, Italian almost 21 points to 156 percent and Spanish 18 points to more than 113 percent. France, Portugal and Belgium will also be badly hit.
By contrast, Germany is expected to increase its debt by only 9 points to 69 percent and the Netherlands by 10 points to 58 percent.
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Austria, Finland, Slovakia and the Baltics will see similar or slightly bigger increases, but to much lower levels than southern states.
ING economist Carsten Brzeski said: “I would bet 100 euros that a debt crisis will not return in the next one or two years.
“However, I would probably also bet another 100 euros that an existential crisis of the eurozone will return. To some extent, the corona crisis is an accelerator.
“It will bring back the fundamental question of what is the right policy and how to deal with high government debt.”
The head of the eurozone bailout fund has said Europe will need at least another €500 billion ($544.10 billion) from EU institutions to finance its economic recovery, on top of the agreed half-a-trillion package.
EU finance ministers agreed on a package of measures worth half a trillion euros to cushion the blow of the coronavirus pandemic, however, it left unresolved the most contentious question of how to share the financial burden that has so bitterly divided them.
The deal left matters open to further arm-wrestling between the divided member states, whose national leaders will meet via video conference on Thursday.
The agreement includes almost unconditional use of the euro zone’s European Stability Mechanism (ESM) bailout fund for loans to governments, a scheme to subsidise wages so that firms can cut working hours rather than jobs, and a plan for the European Investment Bank to step up lending to companies.
However, ministers kicked into the long grass the question of how to pay for a temporary recovery fund for Europe because it goes to the heart of a disagreement over jointly issued debt.
This had been the stumbling block all along, pitting a camp of financially ailing southern states led by Italy against the Netherlands as the bulwark of the fiscally conservative north.
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