Source: IG Charts
Fundamental Euro Forecast: Mixed
- The coming week could well be a “wait and see” week for the Euro, with little action likely ahead of an ECB announcement Thursday onEurozone monetary policy followed by an EU summit to attempt to reach a consensus on a recovery fund.
- For most of last week the Euro was lacking direction – with EUR/USD and EUR/JPY rising, EUR/GBP falling and EUR/CHF moving broadly sideways.
- Now the major risk is stalemate on the recovery fund, which would likely weaken the Euro against all the other major currencies.
ECB on the agenda
The end of the coming week will be busy for Euro traders, who will need to keep their eyes open for an announcement Thursday on monetary policy by the European Central Bank’s Governing Council and then for any news from a special meeting of the European Council on Friday and Saturday.
Prior to that, the Euro will likely be buffeted by risk on/risk off sentiment and movements in the US Dollar. The ECB meeting needs to be watched closely but it too should leave the Euro unmoved as no changes are expected in Eurozone monetary policy.
It was only last month that the ECB decided to respond to the economic downturn caused by the spread of coronavirus infections by increasing its pandemic emergency purchase program (PEPP) by €600 billion to €1.35 trillion, extending the horizon for net purchases under the PEPP to at least the end of June next year and reinvesting the maturing principal payments from securities bought under the PEPP until at least the end of 2022.
There’s little doubt that it will now sit back for a while before deciding whether any further action is necessary. Indeed, ECB President Christine Lagarde told The Financial Times newspaper last Wednesday: “We have done so much that we have quite a bit of time to assess” economic data “carefully”.
That leaves the EU summit as the principal risk event for the Euro and it will be interesting to see whether Lagarde attempts to nudge the leaders attending into reaching a deal.
EUR/USD Price Chart, Daily Timeframe (April 9 – July 9, 2020)
Chart by IG (You can click on it for a larger image)
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EU summit risk for the Euro
The special European Council meeting will take place Thursday and Friday at the Europa building in Brussels so that EU leaders can discuss face-to-face a proposed recovery plan to respond to the Covid-19 crisis and agree a new long-term EU budget. Charles Michel, the President of the European Council, has said “we are aware that it is essential to take a decision as soon as possible,” but there is plenty of room for a slip-up.
The current plan is for an EU recovery fund consisting of €500 billion of grants and €250 billion of loans to help the weakest members of the bloc. However, this faces opposition from the so-called “frugal four”: Austria, Denmark, the Netherlands and Sweden, and failure to agree would almost certainly send the Euro lower.
Brexit, ZEW, inflation and trade
Meanwhile, signs are starting to emerge that the EU and the UK are inching towards an agreement on their relationship once the Brexit implementation period ends in December. Any leaks from the talks – positive or negative – will likely affect GBP rather than EUR but an impact on the Euro too cannot be ruled out.
As for the economic calendar, the main item on the agenda for Euro traders is the ZEW economic sentiment index for Germany in July, expected to drop to 62.5 from 63.4 in June. Otherwise, the only numbers worth watching out for are final June inflation figures from the Eurozone and several of its member states, and May Eurozone industrial production and trade data.
( 10:07 GMT )
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— Written by Martin Essex, Analyst and Editor
Feel free to contact me via Twitter @MartinSEssex