The euro rose amid news that EU leaders have approved a 7-year budget and aid plan for the European Union.
According to reports, the softer stance of German Chancellor Angela Merkel was the decisive factor that led to a compromise during the EU summit. Initially, Merkel opposed a soft position on the issuance of loans and grants, but at the last moment she changed it, because the financing of the economic recovery after the pandemic depended on this. If Germany had gone the other way, it would have slowed down the pace of its economic recovery, since one cannot go far on domestic consumption alone. In addition, the country is the leader among the European Union, so there is no way to do without a large export component, as a sharp drop in economic growth among its neighbors would certainly have a negative impact on its economic recovery. It was also impossible to hesitate with additional funding since later it might come in handy when economies slide into recession, in which each of the EU member states save themselves on their own. Integrity and unity could be forgotten in such a situation, and it will affect the stability of the euro. These factors convinced Merkel and other EU leaders, even Mark Rutte, the Prime Minister of the Netherlands, who was the most implacable opponent of the proposed plan to finance economic recovery.
With regards to recession, which most eurozone economies are under, a quite gloomy forecast is given on the GDP of France as it is expected to contract by 8% in 2020, and recover only by the end of this year. It will also reach pre-crisis levels only by 2022.
Meanwhile, the Italian economy, which, as always, needs the most help, is likely to contract by 10% this year since demand will remain low for quite some time. It also has risks of becoming the most lagging country, as it is forecast to be the slowest economy to get out of the crisis. The total national debt as a percentage of GDP will grow to 162% by the end of 2020, and the assistance approved yesterday will come in handy for the country by helping partially neutralize the huge debt gap in the budget deficit.
Thus, according to forecasts of the European Commission, the GDP of the eurozone will decrease by 8.3% in 2020 due to the crisis caused by the pandemic and quarantine restrictions. In addition, the EU budget will lose up to € 80 billion in net revenue because of Brexit.
As for the United States, the Senate Banking Committee has approved the candidacy of Judy Shelton to the Federal Reserve Board, which ensures victory to Donald Trump on his efforts to create a political confidant who will play a key role in shaping economic policy. Shelton has a high chance of becoming a new chairman of the Federal Reserve System, but it is still too early to talk about it. The next stage of voting is within the Senate, where the Republicans have 53 seats and the Democrats have 47.
Meanwhile, the data which came out yesterday on the US economy did not influence the market. Reports from The Retail Economist, Goldman Sachs and Redbook were ignored, in which it is revealed that the retail sales in the US increased by 0.4% over the week of July 12 to July 18, but decreased by 8.9% compared to the previous period. Redbook said that retail sales jumped by 1.9% in the first 2 weeks of July, but fell 6.5% from a year ago.
Economic activity in the US also continued to recover in June. The Chicago Fed reported that the index of national activity in its area rose from 3.50 points in May to 4.11 points in June, slightly better than the forecast of economists which was 4 points.
As for the technical picture of the EUR / USD pair, the bulls may face difficulties in the near future, particularly in overcoming the resistance level of 1.1550, which was reached today at the Asian session. A breakout of the area will increase demand for risky assets, and it will open an easy path for the quote to rise to the highs 1.1610 and 1.1660. But a downward correction in the pair may also occur today, the first support level of which is the level of 1.1500. Meanwhile, the larger range from which buyers of risky assets will enter the market is the level of 1.1465.
Analysis and trading recommendations for the EUR / USD pair on July 22, 2020
Analysis and trading recommendations for the GBP / USD pair on July 22, 2020
The results of the EU summit also rose gold to the level of $ 1865, but it may rise even further since the new program could increase inflation and depreciate the dollar, which makes gold an even more attractive instrument since the asset is a key defense against inflation. A breakout from the level of 1865 will lead to the test of $1900, and also to a move towards the psychological level of $ 2000.
