EUR/USD Daily Forecast – Euro Boosted By Proposed EU Stimulus Plan
Germany and France have allied to put forward a plan that would provide 500 billion euros worth of grants to EU member states whose economies are hard-hit by the Coronavirus.
In a rare joint statement on Monday by German Chancellor Angela Merkel and French President Emmanuel Macron, the two leaders laid out the proposal with the aim of keeping the EU united.
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Both leaders made concessions to get to this stage. Macron had wanted a larger 1 trillion euro package. Merkel had initially opposed the proposal as it entails providing grants to those countries that need it, rather than loans. She eventually agreed so as not to increase the debt burden of already weak economies.
Some of the other European member states have not gotten on board. Similar to Merkel’s initial view, they insist that the proposed package be modified to give out loans instead.
The currently proposed scheme involves borrowing funds from the capital markets and having them paid back gradually from the EU’s overall budget.
Further talks will take place but the single currency has gained broadly on the news and is up 1.4% from yesterday’s lows, trading at a fresh two-week high.
Technical Analysis
After spending a few weeks consolidating near important support, EUR/USD has moved sharply higher to signal a bullish breakout. This suggests buyers will be quick to step in on dips.
The pair had been trading within a narrowing range at support near 1.0800, which accompanied a rising trendline that originates from the March low, ahead of yesterday’s rally. The cross above the mid-May highs has produced a sequence of higher highs and higher lows.
Near-term support is seen at 1.0897 as the level held the pair lower earlier in the month. To the upside, a major hurdle is seen near the 1.1000 handle as the area held the pair lower around the middle of April and towards the start of the current month.
Bottom Line
- EUR/USD is seeing renewed bullish pressure as the EU is working towards a fiscal response to the Coronavirus.
- A break above the mid-May high has set a firm bullish tone for the pair and buyers are likely to step in to keep the pair supported on dips.