Implications of the EU summit for EURUSD and EURNZD

If asked to identify the most significant development in markets this week, it was EU leaders reaching an agreement on the EU Recovery fund.

We first flagged the possibility of this in an article back in May here following a joint press conference where German Chancellor Angela Merkel and French President Emmanuel Macron proposed a €500bn Recovery fund to support the regions worst hit by COVID-19.

Shortly afterward the size of the proposed fund was bumped up to €750bn. As noted in a subsequent article in early June here we thought this would result in the EURUSD then trading near 1.1130 to test year to date highs, 1.1500 area.

Returning to the just-completed EU summit, most analysts believed it would be a stepping stone to an agreement in the coming months. The ability of EU leaders to strike a deal and to get ahead of market expectations timing wise, is something rarely seen before from the EU.

While the final component of grants vs loans was lower than expected at €390bn, the important point here is after taking the first steps to fiscal solidarity, it becomes easier for the EU to increase the size of grants if needed in the future.

In summary, the outcome of this week’s EU summit reinforces the EU region's ability to recover from the pandemic and the positive medium-term momentum for the EURUSD. We favour buying corrective pullbacks towards support at 1.1450/30 in expectation of a move towards the June 2018, 1.1852 high in the coming weeks.

In the short term, EURNZD is currently of interest as it provides exposure to the positive EUR sentiment and some protection from a selloff in equities into the weekend.

Technically, as supported by the bullish divergence at the 1.7163 low and the overnight rally above trend channel resistance, EURNZD appears to have based. We would consider longs in EURNZD at the current price of 1.7515 with a stop loss below the 1.7266 low, looking for the rally to extend towards 1.8000.

Source Tradingview. The figures stated areas of the 24th of July 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.