Implications of the EU summit for EURUSD & EURNZD

Its been another eventful week in markets. Although in a refreshing change, it’s been foreign exchange and commodities that have grabbed the spotlight as global equity markets tread water, finally content to take a supporting role.

EU (2)

If asked to identify the most significant development in markets this week, it was EU leaders reaching an agreement on the EU Recovery fund.

We first flagged the possibility of this in an article back in May here following a joint press conference where German Chancellor Angela Merkel and French President Emmanuel Macron proposed a €500bn Recovery fund to support the regions worst hit by COVID-19.

Shortly afterward the size of the proposed fund was bumped up to €750bn. As noted in a subsequent article in early June here we thought this would result in the EURUSD then trading near 1.1130 to test year to date highs, 1.1500 area.  

Returning to the just-completed EU summit, most analysts believed it would be a stepping stone to an agreement in the coming months. The ability of EU leaders to strike a deal and to get ahead of market expectations timing wise, is something rarely seen before from the EU.

While the final component of grants vs loans was lower than expected at €390bn, the important point here is after taking the first steps to fiscal solidarity, it becomes easier for the EU to increase the size of grants if needed in the future.

In summary, the outcome of this week’s EU summit reinforces the EU region's ability to recover from the pandemic and the positive medium-term momentum for the EURUSD. We favour buying corrective pullbacks towards support at 1.1450/30 in expectation of a move towards the June 2018, 1.1852 high in the coming weeks.

In the short term, EURNZD is currently of interest as it provides exposure to the positive EUR sentiment and some protection from a selloff in equities into the weekend.

Technically, as supported by the bullish divergence at the 1.7163 low and the overnight rally above trend channel resistance, EURNZD appears to have based. We would consider longs in EURNZD at the current price of 1.7515 with a stop loss below the 1.7266 low, looking for the rally to extend towards 1.8000.  

Source Tradingview. The figures stated areas of the 24th of July 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from EUR

From time to time, GAIN Capital Australia Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.