Euro Forecast – EURUSD Awaits Direction from EU and ECB Summit

EURO FORECAST – TALKING POINTS

  • As of now, the greatest risk is the stalemate for the recovery fund that will most likely weaken the EUR against major currencies.
  • For the biggest part of last week, the EUR lacks direction – with EUR/JPY and EUR/USD surging, EUR/CHF broadly mobbing sideways, and EUR/GBP falling.
  • Next week will most likely be all about ‘wait and see’ week for the EUR. There is very little action that will happen before the ECB announcement on Thursday about the Eurozone fiscal fund. This would be followed by the EU summit to try and reach an understanding of the recovery fund.

EURO FORECAST CHART

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Euro-Forecast

ECB A MAJOR POINT OF CONSIDERATION

The end of next week looks like it will be a pretty busy week for Euro investors. Especially those that want to keep up to date pending Thursday’s announcement on fiscal policy by the ECB governing council. This will also be followed by the news coming from the special meeting of the European Central Bank council on Saturday and Friday.

Before that, it is highly likely that the Euro will be buffeted by risk-off/risk on movements and sentiment in the USD. The ECB meeting should be closely watched, but it should also leave the Euro as it is, without any notable changes. This is because there are no adjustments that are expected in Europe’s Fiscal policy.

Essentially, last month the ECB opted to make a response to the economy downtrend that was caused by the spread of COVID-19 cases with an increase of its pandemic emergency purchase program (PEPP) by between €600 billion and €1.35 trillion. This will significantly extend the horizon for extranet purchases under this PEPP upto June 2021. Also, it will reinvest the principal payments that have already matured from the securities that were brought under this PEPP until the fourth quarter of 2022.

There is no doubt that they will now have to sit back for sometime before they decide whether any more action will be necessary. This has been further discussed by Amid Industrial Output Release EURO (Eur) Sinks Against the US Dollar (USD) On Thursday.

That said, the EU summit has been left as the main risk event for the EUR. As a result, it will be fascinating to see if the ECB president tries to coax the leaders in attendance to reach a deal.

EUR/USD Rate Chart

Euro-Forecast-EURUSD

The EU summit meeting will take place on Thursday in Brussels. This will give the EU leaders a chance to discuss the suggested recovery plan to respond to the coronavirus pandemic.

TRADE, INFLATION, ZEW & BREXIT

Currently, signs have emerged that the UK and ER are highly likely to reach a post Brexit agreement after Brexit implementation duration ends by the end of 2020. Any leaks from these discussions, be it negative or positive will notably affect the GBP and not the EURO. However, the effect it could have on the EUR should not be ignored.

About the economic calendar, the primary point of concern for Euro investors is ZEW’s economic sentiment indices for Germany in July. Also, it’s expected to drop further from 63.4 in June to 62.5 in July.

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