European Union Recovery Fund
European Commission President Charles Michel is expected to propose a compromise plan – mainly to convince the Dutch to join – to be reviewed at the meeting of the Eurogroup Finance Ministers on July 9.
EURUSD has been appreciated recently, supported by dollar softness amid a risk-on backdrop in global markets today as Chinese state media push the recovery story even as the WHO reported a record daily number for Covid-19 infections over the weekend. More above-forecast data has come, this time out of the Eurozone, with both May retail sales figures and the July Sentix investor confidence index surpassing expectations, which has been a theme in global data releases since May. The EU’s proposed EUR 750 bln multiannual financial framework fund has been taken as a positive step in analysts commentaries, being a hinge factor of some recent bullish euro calls, on the basis of it reducing eurozone breakup risk while creating a new liquid and higher-yielding AAA asset, which will attract inflows from real money investors and reserve managers.
Markets look likely to remain trapped in a constant state of tweaking risk premia, which for EURUSD means downside pressure when the Dollar gains on safe haven demand, and upside pressure when things are looking more rosy.
Technical View
EURUSD continued to hold sideways trading last week and the outlook has not changed. Initial bias remains neutral for this week and more sideways trading is seen. On the negative side, a break of 1.1168 will target the 61.8% retracement at 1.1080 and further at 1.1018. On the positive side, a break of 1.1348 is likely to resume gains from 1.0635 through testing 1.1422 to 1.1496 key resistance.
In the 4-hour chart, price patterns tend to form triangles, with average prices still above the 120-EMA and 200-EMA, while technical support sees RSI and MACD flat at the neutral zone.
In the bigger picture, as long as the 1.1496 resistance holds, the downward trend from the 1.2555 peak (2018 high) will continue. The next targets are 1.0870 and 1.0635 (March low). However, a continued break through 1.1496 will imply that the downtrend has been completed.
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