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01.07.202011:24 Forex Analyse & Reviews: EUR/USD. Germany's "gifts" helped the euro stay afloat

Difficult times are coming for the traders of the EUR/USD pair: the pair will follow not only the US currency in the near future, but also respond to European events, in anticipation of the July summit of the EU countries. In June, the euro was a "driven" currency – the tone of trading was set mainly by the dollar, which in turn reacted to spikes or declines in anti-risk sentiment. The single currency was not mentioned so often: only the results of the ECB's June meeting gave it temporary support. But the market ignored the June online summit of EU leaders – the parties outlined only the general outlines of future agreements, while no decisions were made. The agreement was made for July – this is the month when Europe will either agree or reject the 750 billion euro anti-crisis plan of the European Commission. Therefore, in the next two and a half weeks (the summit will be held on July 17-18), traders of the EUR/USD pair will react to various rumors, such as comments and statements from representatives of the European political community regarding the prospects of a "rescue package".

Exchange Rates 01.07.2020 analysis

As a result of the June summit, it became clear that the so-called "mean four" (the Netherlands, Austria, Denmark and Sweden) are still in opposition to Brussels and to the most significant European players, including Germany and France. Representatives of these countries proposed to form a fund not of non-repayable payments, but of one-time loans, and not more than two years with a limited scope of spending. At the same time, many observers noted that the rhetoric of the "opposition" was somewhat softened - at least in comparison with their earlier statements. But one of the most controversial aspects of the new European Commission plan still remained on the agenda. It is about the exact form in which Brussels will allocate assistance - with the help of grants or loans. There are no questions regarding credit relations: those countries that received them will pay them. But the situation looks much more complicated with grants, since this is free assistance for recipient countries. And all countries of the Alliance will return the loan - including those countries that contribute substantially more to the EU budget than they get from there (among them are representatives of the "mean four" - the Netherlands and Austria).

Therefore, the disposition of the parties is quite clear - Brussels and key EU countries support the anti-crisis plan of the European Commission, while representatives of the Netherlands, Austria, Denmark and Sweden oppose it. But the consent of all countries of the Alliance is necessary for the plan to be approved, so the main intrigue is whether the political heavyweights of Europe can convince the "mean four". This issue will either put pressure on the euro or vice versa - support, depending on the context of previous rumors and comments. For example, the single currency strengthened yesterday against the background of the words of German Foreign Minister Heiko Maas that the agreement on the EU recovery fund "is most likely to be reached in July." Earlier, German Chancellor Angela Merkel also expressed confidence that EU member states "will overcome all differences" for July's EU summit.

Thus, any positive comments regarding the prospects for approving the European Commission plan will support the European currency. And the closer we are to July 17, the stronger this fundamental factor will "work".

In the meantime, the euro is responding to current macroeconomic statistics. Yesterday, data on rising inflation in eurozone countries were published. The overall index came out slightly better than expected - contrary to pessimistic forecasts, it did not decline into the negative area and rose to a minimum of 0.3%. But core inflation fully met the expectations of experts, slowing down its growth to 0.8%. The market was ready for such a result, given the growth of German inflation (the corresponding release was on the eve of the publication of pan-European figures).

Today, the European currency received another "gift from Germany." This time, good data on retail sales was published. The indicator jumped to 13.9% in monthly terms after a 5.3% decline in the previous month. Most experts expected to see this indicator at around 3%, so an almost 14 percent increase pleasantly surprised the buyers of EUR/USD. The annual growth rate was 3.8% (with a forecast of decline to -3.8% and the previous value of -6.5%). The German labor market is also pleased, although successes are not so pronounced here. The main components came out in the "green zone", so the very fact of rising unemployment was ignored by the market. So, the number of unemployed in June increased by 69 thousand, while experts predicted the growth of this indicator by 120 thousand. The unemployment rate rose to 6.4% with a growth forecast of 6.6%.

Exchange Rates 01.07.2020 analysis

Such a news flow helped buyers of EUR/USD to stay in the 12th figure. Now, the main task of the pair's bulls is to break through the level of 1.1260 (the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line on the daily chart). In this case, the Ichimoku indicator will generate a bullish signal "Parade of Lines", which will allow us to expect further price growth to the main resistance level of 1.1360 - this is the upper Bollinger Bands line on the same time frame. In other words, it is suggested to consider the longs when consolidating the pair above the target 1.1260. Yesterday, buyers were not able to break through this price barrier, followed by a downward pullback. Today, a second attempt to attack is likely - especially if the US manufacturing ISM index is released in the negative zone. Although the main positional struggle between the EUR/USD bulls and bears will unfold tomorrow, after the publication of June Nonfarms.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Irina Manzenko,
Analytical expert of InstaForex
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