The resilient euro rebounds at every dip: here are 2 reasons why

Posted 16 March, 2022

The common currency is finding buyers at every dip, despite a devastating war on its doorstep. So why is the euro so resilient?

When Russia invaded Ukraine, many were quick to call the end of the European Union as we know it and the euro. It's not the first time the common currency has been called "doomed" by traders saying it's impossible to survive.

After all, the European Union was built on crises. Nonetheless, he found a way to survive each of them – starting with the Greek sovereign crisis and ending with Brexit.

Today, the Russian-Ukrainian war is another reason for concern for Europe, already weakened by Brexit. But on the contrary, a unified Europe reacted quickly to an invader, which would have been much more difficult for a single country.

Either way, the common currency has found buyers with each dip. For example, see the EUR/JPY chart below.

After the initial decline on fears of what the war in Ukraine brings, the pair rallied back to 130. Judging from the technical picture, the logical target is around 132, where the pair has been struggling to find buyers.

So why is the euro so resilient? Here are two explanations: the ECB will not delay the normalization of its monetary policy, and the war in Ukraine has shown a unified European response.

 

 

The ECB accelerates the tapering of its asset purchases

The monetary policy decision and the ECB's press conference in March showed the central bank's determination not to delay the normalization of its monetary policy.

In other words, the war in Ukraine will not prevent central banks from tightening policy, and it has surprised markets by accelerating the reduction of its asset purchases, thus making the single currency more attractive to investors.

Russia invading Ukraine sparked a unified European response

Surely Russia thought that Ukraine would fall within days, but that was not the case. One of the reasons, besides the bravery of the Ukrainian people, was the unified European response.

Never before has the European Union reacted so quickly to a crisis – not even in response to the COVID-19 pandemic.

Such unity shows investors that Europe in its current format is here to stay as it speaks with one voice even in the face of evil. So why not buy the common currency then?

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