Coincidentally, the July meeting of the European Central Bank will be held on the eve of the most important event for Europe – the summit of EU leaders. For the first time since the beginning of the pandemic, representatives of the bloc will meet offline to discuss the European Commission's 750-billion anti-crisis plan. Given the significance of Friday's meeting, many market participants doubt that the ECB will surprise investors tomorrow. It is almost 100 percent likely that the ECB will leave the monetary policy parameters unchanged and at the same time refrain from any specifics about the future prospects. After all, if the EU leaders do not agree on an anti-crisis plan on Friday, they will postpone the discussion of this issue to the end of August, while the next meeting of the ECB will be held on September 10. In other words, the fate of the EU recovery fund will be clear by the next ECB meeting, while there is still intrigue in this issue at the moment.
All this suggests that the July meeting will most likely be of passing. However, not everyone agrees with this assumption. According to a number of currency strategists, the ECB could outline further steps that will be taken in any case by tomorrow – whether the EC anti-crisis plan will be implemented (in its current form) or not.
This is a question of expanding the Pandemic Emergency Purchase program (PEPP). Let me remind you that the main intrigue was around this program on the eve of the June meeting. At that time, the European regulator spent about 210 billion euros out of 750 (that is, less than a third), so it could well afford not to rush to further decisions. According to experts, at an "even" rate of spending, the amount of the program would have been spent in mid-October, especially amid the weakening of quarantine measures in key European countries. By and large, there was no extraordinary need to expand PEPP at the June meeting. But at the same time, the market expressed general confidence that the ECB will allocate an additional 500 billion euros, as if in advance to repay the worries on this account. The solution would be to expand the program by 250 billion, while extending its term for the next year.
But the ECB surprised: not only did it expand the PEPP, but it also exceeded even the most optimistic expectations, increasing the volume of the program by 600 billion euros at once. In addition, the ECB extended the program "until at least June 2021". In other words, the most optimistic scenario for the euro was realized in June, and this fact made it possible for buyers of EUR/USD to update three-month price highs.
Experts are also discussing the prospects for PEPP on the eve of the July meeting. This time the ECB does not expect concrete actions, but they anticipate certain hints. The fact is that, according to a recent survey by Bloomberg, most economists are confident that the ECB will expand its bond purchase program in the coming months. In their opinion, the PEPP anti-crisis program will be increased by another 500 billion euros by December. The euro will receive additional support if the regulator admits the likelihood of this scenario tomorrow. Also, according to some analysts, the ECB may also increase the multipliers in the differentiation of rates to reduce the negative effect of negative rates.
Thus, the ECB can strengthen the upward momentum of EUR/USD tomorrow, which is currently due to general optimism about the euro. The market is confident that the leaders of EU countries will agree on an anti-crisis plan of the European Commission on Friday. The other day the European Council President Charles Michel voiced new proposals that could lead to a compromise solution. In particular, he proposed to determine the EU budget at 1.074 trillion euros, and leave the volume of the economic recovery fund and the ratio of grants and loans in it unchanged. But at the same time, those countries that pay more to the EU general budget than receive from it will acquire a part of their contributions. We are talking about Austria, Sweden, Denmark, the Netherlands, as well as Germany. Michel also proposed covering losses by increasing the EU's own resources through future taxes on plastic waste, importing industrial products from countries that apply less stringent standards to reduce greenhouse gas emissions, and also through a digital tax that will affect companies such as Google, Facebook and Amazon.
At the moment, the so-called separate negotiations (which precede the general meeting) are still ongoing, which means that the intrigue remains. In my opinion, the euro is ahead of events - but rumors of a positive nature help the euro grow throughout the market, also against the dollar.
From a technical point of view, priority is also given to the growth of EUR/USD, and on all the higher timeframes - H4, D1, W1 and MN. So, on the daily chart, the price exceeded the upper line of the Bollinger Bands indicator, and the Ichimoku indicator formed a bullish Parade of Lines signal. The weekly chart also shows the priority of the upward scenario: the pair is between the middle and upper lines of the Bollinger Bands indicator, and the price is above the Kumo cloud. The monthly chart suggests that the price is between the middle and upper lines of the Bollinger Bands indicator - that is, subsequent growth can be of a larger scale - up to the level of 1.1510 (the upper BB line on MN). If the pair, according to today's results, remains within the 14th figure, one can consider long positions to this level of resistance.
