The euro strengthened since the beginning of the week to reach 1.0916 against the US Dollar in early European trading today (27 / February). Even though there is no positive economic news that supports the Euro specifically, technical factors and market mechanisms have pushed up the exchange rate in the short term.

Initially, the threat of the impact of the Coronavirus outbreak (COVID-19) has prompted investors and traders to shift funds from higher-risk assets to safe-haven. Greenback and Gold experienced rapid strengthening as the impact of the situation. However, the same situation has several subsequent side effects.

First, US bond yields plummeted to trigger a revival in speculation of a Fed Funds Rate (FFR) cut. The 10-year US government bond yield fell to a record low of 1.29 percent in the New York trading session. This makes the US Dollar exchange rate corrected again.

Second, the liquidation of risky assets encourages increased buying interest in funding currencies, which are low-interest currencies that are commonly exchanged in carrying trade transactions. The euro is one of the funding currencies, as is the Japanese Yen.

USD Falls, EUR Second Best

"During this week, the Euro is the second best-performing G10 currency. (But of course) there is an important risk for this Euro support if COVID-19 is spreading wider within Italy or the Eurozone, "said Lee Hardman, a currency analyst at MUFG.

Meanwhile, technical expert Karen Jones from Commerzbank assesses that the recovery in EUR / USD has been predicted since the pair bounced just above 1.0763 which was a milestone for the 2000-2020 uptrend. The key support triggers a reversal with a minimum target of 1.0879. 

The US dollar fell in the trading session Thursday (27 / February) tonight due to US Treasury bond yields that continue to plummet to new lows. Investors still expect that the Fed will cut interest rates to offset the impact of the Coronavirus on the global economy. At the time of writing, the US Dollar Index (DXY) fell 0.63 percent to 98.52.

After briefly estimating that the Fed's Rate Cut will resume in June, the market is now more advanced. They predict that the US central bank will cut interest rates by 25 basis points at the FOMC meeting next April. The interest rate cut may be carried out three times until March 2021.

EUR Able to Beat the USD

Not only the Fed, but the European Central Bank (ECB) is also predicted to strongly reduce interest rates by 10 basis points in July. According to a survey quoted by Reuters, the prospect of ECB interest rate cuts reaching 80 percent.

So why did the US Dollar weaken while the Euro rose to prominence? According to analysts, this is because the Fed interest rates are still higher than the ECB. That makes the chance of a Fed rate cut still bigger than the ECB. For this reason, investors prefer to sell their current US Dollars.

Going forward, Nguyen estimates that the ups and downs of the US Dollar will depend on economic data affected by the Coronavirus and trade outside of China.

Apart from the issue of cutting interest rates, tonight the United States released some economic data. Durable Goods Orders every month fell from 2.9 percent to -0.2 percent. However, the decline was still better than expectations of a decline to -1.5 percent.

Also, preliminary US GDP per quarter was observed to grow 2.1 percent in line with expectations. Data for the fourth quarter of 2019 is stagnant when compared to US GDP in the third quarter of 2019. If you view the annual US GDP gain, growth is only 2.3 percent, still far from President Donald Trump's target of 3 percent.