What happened?
The leaders of the European Union were still able to create a fund for the recovery of the eurozone economy following a protracted five-day negotiations. Although the final version of the European Commission's anti-crisis plan differs from the initial one, the fact itself supported the single currency. The results of the July summit should be considered not only from a practical point of view, but also from the point of view of a certain symbolism. The heads of European States have shown that despite all the existing contradictions, they can find compromise options, solving a common problem. In other words, the leaders of the EU countries have demonstrated their "contractual capacity", which is especially important against the background of Brexit and the strengthening of eurosceptic sentiment in a number of European countries.
It is worth noting that the amount of financial assistance for different European countries will significantly differ. For example, Italy, which is one of the most affected countries, will receive almost 30% or 210 billion euros from the fund. Spain will receive more than 140 billion, Poland with around 160 billion, and Greece with 32 billion (+40 billion euros from the EU budget). Judging by the first comments of the leaders of these states, they were satisfied with this result.
As a result of difficult negotiations, the parties managed to avoid linking the allocation of EU budget funds to issues of the rule of law. The day before yesterday, a serious conflict arose around this issue between the head of the Dutch government and the prime minister of Hungary. The situation has escalated to such an extent that the Hungarian Parliament called on Viktor Orban to block the joint decision of the EU if a new mechanism for freezing EU money for countries that violate respect for common rules and norms, media freedom and the independence of justice is discussed during the summit. There were also certain complaints about Poland yesterday, which has carried out an ambiguous judicial reform (according to the EU leadership, the Polish ruling party has strengthened the vertical of power).
But the parties were able to smooth out the sharp corners: The Netherlands did not insist on a new mechanism, and Hungary and Poland supported the agreed position on the creation of an economic recovery fund and the EU budget.
In addition, subsequent comments from senior politicians and officials provided support for the single currency. In particular, Federal Minister for Economic Affairs Peter Altmaier said that EU funds may become available this year, while the positive results of the summit allow us to hope for the recovery of the eurozone economy in the second half of the year. He also expressed confidence that in 2021 all European states will "return to the path of growth". European Central Bank Vice President Luis de Guindos also voiced optimistic comments. According to his estimates, the decline in the eurozone economy may be "less extensive than previously expected" in the second quarter.
Therefore, recent events have given market participants confidence that Europe will cope with the consequences of the coronavirus crisis. At the same time, the prospects for the American economy remain vague. The White House is only developing a package of additional incentives, while the corresponding bill has yet to be approved in Congress. The Congress itself is known to consist of the House of Representatives (lower house) and the Senate (upper house). And if the Senate is controlled by US President Donald Trump's party members, the House of representatives is under the hood of his political opponents – Democrats. All this suggests that the White House will have to negotiate with representatives of the Democratic party. And in the context of the upcoming presidential elections (which will be held in the US in November), these negotiations promise to be difficult. Given this fundamental picture, the dollar is under background pressure – and not only against the euro, but also throughout the market.
How to trade?
Immediately after the results of the EU summit were announced, the EUR/USD pair rose to 1.1468, but after that the upward momentum choked. Apparently, many traders adhered to the principle of buy on rumors, sell on facts, so we saw the price slightly retreat in the first half of Tuesday, due to profit-taking and short-term sales.
But if we consider the medium-term prospects of EUR/USD (at least until the end of this week), the pair retains the potential for its further growth. While the sellers do not have any clear arguments for their dominance. At the moment, the pair is testing an important resistance level of 1.1510 – this is the upper line of the BB trend indicator on the weekly chart. If the pair is pinned above this target, it will be possible to consider purchases to the 1.1600 level. As a rule, such a powerful growth is followed by a price pullback, followed by a resumption of the trend. The main task of bulls is to catch such a pullback in order to buy euros at a more favorable price. The support level is the price of 1.1380 – here you can place a stop loss. If the price falls below this level, the growth scenario will lose its relevance.
