Article Hero

The Euro under direct scrutiny on EU COVID-19 deal – Market Analysis – July 20

1595311398.jpg
Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
All is silent, all is calm ahead of the EU deal finalization

The session focuses on events in Brussels as the EU negotiations on the recovery fund lasted up to the fourth day in a row but finally came close to a compromise.

Comments from leaders such as Merkel, Rutte, or Macron suggest that a minimum agreement has been reached in which the amount of the fund allocated to grants is reduced from EUR500 bln, initially proposed, to EUR390 bln, the rest will be granted in the form of loans. 

At the time of writing this analysis, it is not yet known whether the total amount of the fund remains at the EUR750 bln proposed by the European Commission, or it's been reduced. 

If it were to be reduced, which is unlikely, the amount would be of little importance, at least not to affect the market. 

Negotiations resume at 4:00 p.m. CET, and the final agreement will likely not be known until well into the night.

Market reactions

The market is still waiting for the details, and subdued activity remains with a slight positive risk-sentiment.

Stock indices show modest gains in a market with no clear direction at the moment.

EUR/USD, in the forex market, has reacted with contained optimism to the possibility of a deal and has surpassed the highs of the last four months, reaching the level of 1.1465. 


The pair needs to surpass the technical and psychological level of 1.1500 for its uptrend to gain momentum and head towards the technical level around 1.1600. 

If it is reached today, the approval of the agreement could contribute significantly to this movement, even more, if we take into account the weakness of the Dollar.

In situations like the current one, with less risk aversion, experience outflows are looking for higher returns on assets denominated in other currencies. 

DollarIndex is about to break down a significant support level around 95.74, below which it is paving the way for more significant losses.


The Australian Dollar & Copper

With a declining Dollar and an improvement in market risk sentiment, a pair that would be driven higher would be AUD/USD

The Australian Dollar has recovered virtually the entire drop caused by investors' fear of a blockage in economic activity due to the epidemic. The only factor that could put it in danger would be the escalation of political tensions with China. 

Still, everything indicates that this aspect is not worsening and has passed into the background. In favor of this movement, we find the recovery of commodities with COPPER already above pre-crisis levels and encouraging economic data from China.

AUD/USD finds an intermediate resistance level at 0.7060, above which the targets of a bullish movement would be at 0.7200, 0.7290, and 0.7380.


This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

Share this article

How did you find this article?

Awful
Ok
Great
Awesome

Read More

Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.