Finance Ministers of the eurozone held a meeting on Friday, during which President Charles Michel of the European Council made specific statements and proposals regarding the EU economy. The statements led to a rise in demand in favor of the risky assets, which resulted in the recovery of quotes after a sharp decline on Thursday. It gives hope that both the EUR / USD and GBP / USD pairs will continue to rally in the future.
At his speech, President Charles Michel proposed to create an MFF reserve fund worth € 1 trillion 74 billion, which will be used to fulfill the long-term goals of the European Union. It will allow for faster recovery of the eurozone, after the eradication of the coronavirus pandemic.
Such a proposal was already introduced last February. From it, the European Commission will borrow up to € 750 billion, which will be used to support the countries that need help by issuing loans under the MFF programs. On the distribution of funds, the first thing that will be allocated for is the restoration of sectors most affected by the crisis. 70% of the recovery fund will be involved in 2021 and 2022, while access to the remaining 30% will be opened in 2023, after analyzing the fall in GDP of the eurozone countries in 2020 and 2021. The general package should be mastered by 2026 .
President Michel also proposed maintaining a balance between loans, guarantees and grants in order to avoid undue burden on high-debt member states. In his opinion, such an approach is the key to the future of the single market and the prevention of fragmentation and inequality.
However, before receiving the money, the countries in the European Union must develop and prepare detailed plans for economic recovery and increase the sustainability of its growth for 2021–2023. For this, the European Commission will prepare recommendations for specific countries most affected by the coronavirus.
As for the EU Summit that will take place on July 17 and 18, the meeting will discuss fiscal responses to the coronavirus, but many economists do not expect that an agreement will be reached on the assistance plan proposed by the European Commission. The likelihood of finding a consensus about it is high enough, but it will take more time. Nevertheless, any positive news in this direction will support the European currency.
With regards to macroeconomic statistics, Insee published a data on Friday, which indicated that industrial production in France recovered in May, after weakening due to the quarantine measures. Total industrial production grew by 19.6%, while economists had expected a growth of 12.5%. Production in the manufacturing industry also increased by 22%, and the energy sector rose by 9.2%. A noticeable increase in the indicator of Italy was also recorded in May, but if we compare its figure at the record last year, it is still lower by 20%, since not all enterprises have returned to work.
In the United States, Robert Kaplan and US President Donald Trump gave a speech, but it did not greatly affect the market.
During an interview, President of the Dallas Fed Robert Kaplan said that the weak inflation data was not a surprise since the economy has many underloaded production capacities. The latest report revealed that the PPI in the US fell by -0.2% in June this year, while economists expected it to rise by 0.4%. Base producer prices, where food and energy are not taken into account, also fell by 0.3%, lower than the economists' expected growth by 0.1%. Most likely, rise in inflation will not happen soon enough, and only the recovery of activity, as well as the economy, will raise the prices in the country. Kaplan believes that economic growth will only be observed in the second half of the year.
Donald Trump also made an announcement on Friday regarding trade relations with China. According to him, he is not thinking about starting the second phase of the agreement yet, which overshadows the hopes for a new trade agreement with China.
"Relations with China have been hit hard," said Trump, voicing yet another criticism over the coronavirus pandemic that the Chinese authorities supposedly allowed.
Meanwhile, as for the technical picture of the EUR/USD pair, the further direction of the quotes will depend on the movement in the resistance level 1.1350. A break of which will increase the demand for risky assets, which will push the trading instrument even higher to the highs 1.1400 and 1.1440. But if demand for the euro decreases this week, the pair will most likely remain in the side channel, until other macroeconomic reports are published. The level of 1.1255 will be the largest support level, from which the bulls placed long positions on Friday, which led to a recovery in the European currency. A breakout from this range will lead to the demolition of a number of buy stop orders and a larger movement of the euro down to the lows 1.1190 and 1.1120.
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