The EUR/USD pair has shown increased volatility in recent days. However, it still remains within the range of 1.1370-1.1450, in which on Wednesday, the bulls managed to update the four-month high, almost nearing the middle of the 14th figure. But the conflicting rumors on the possible outcome of the EU summit (which starts today) returned the pair to the lower border of the above range. The bulls are rapidly losing their positions, the reason for which is the news that the parties may not reach a consensus on the anti-crisis plan of the European Commission. Today, rumors arose once again, after which the quote returned to the 14th figure. But given the continuing intrigue around the summit, opening any orders (both for buying and selling) for the EUR / USD pair is risky.
Although there are preconditions for a compromise, there is currently no confidence on a positive outcome in the summit. Nevertheless, European Council president Charles Michel said that EU leaders "are most likely to be able" to agree on the creation of a fund for economic recovery, and Emmanuel Macron, President of France, also expressed cautious confidence in the possibility of a deal. A similar rhetoric was also voiced by the head of the Greek government, but he admitted that there were disagreements.
The bulls used these phrases to push the EUR/USD price up, ignoring the skepticism of other EU representatives. In particular, the head of the Dutch government said that he did not believe in the success of today's meeting, saying that the chances of reaching an agreement at the July summit were "less than 50 percent." Even Angela Merkel, Chancellor of Germany, doubts that a consensus will be reached today, as she believes that the negotiations will be "very difficult" since the differences between the countries "remain significant."
The main reason for the disagreements is the fact that richer countries of the eurozone are not eager to borrow capital in the markets for the entire European Union. They know that the debt will be given mainly to them, and not to those states that already have a large national debt. In addition, the long-running conflict between Northern and Southern Europe has been going on since spring, when Italy and Spain insisted on the introduction of the so-called "corona bonds", in which Germany and almost all countries of Northern Europe opposed this initiative. Now, Germany supports the anti-crisis plan of the European Commission, even though it includes both loans and grants. But the problem is that the implementation of this plan requires the consent of absolutely all EU member states, while at least four states (Austria, Sweden, Denmark, and the Netherlands) do not agree with the proposed conditions.
According to available information, the negotiations began with a discussion of the proposal put forward by the President of the European Council. On the one hand, he proposed to keep the volume of the economic recovery fund in its original form (750 billion), while maintaining the ratio of grants and loans. On the other hand, he proposed a compromise solution: a part of their contributions will be returned to those countries that pay more to the general budget of the European Union than receive from it. These are the aforementioned four countries plus Germany. Charles 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. It can also be through a digital tax that will affect companies such as Google, Facebook and Amazon.
In turn, the Prime Minister of the Netherlands offered to demand reforms in exchange for assistance to the lagging countries. If the idea of Michel finds a response among the representatives of the "north" and "south", then the proposal of the head of the Dutch government will clearly be accepted "with hostility" by Italy and Spain.
In other words, the parties will have a difficult dialogue. Negotiations began in the morning of Friday, and, given the importance of the issue at hand, they can last until late at night. For example, one of the previous rounds of negotiations (in spring) lasted more than 15 hours. Moreover, the summit itself will last 2 days. This means that the market reaction to the summit results will follow on Monday. If a decision is made (or not made) already on Saturday, then the start of trading on the EUR/USD pair will be marked by a gap. The only question that remains is where the price will go in the chart. Thus, due to such uncertainty, it is better to refrain from trading at the moment, and in any case, do not leave open transactions on weekends.
