The US currency continues to retreat: despite a strong price spurt last week, dollar bulls could not hold their positions. The dollar index again fell below the 100-point mark, and currency pairs of the major group changed their configurations to one extent or another. The EUR/USD pair was no exception here – the price not only rebounded from the local low of 1.0768, but also swung to the ninth figure.
Moreover, in this case, the pair is growing not only because of the general weakening of the dollar, but also due to the strengthening of the European currency (look, for example, the dynamics of the cross-pairs EUR/CHF EUR/GBP and especially EUR/JPY). Traders are somewhat optimistic about the possible outcome of the online summit of EU leaders, which will be held the day after tomorrow, April 9. This optimism is quite justified if you believe the information from Reuters. According to them, this week the European Union will agree on a 500-billion package of assistance to overcome the consequences of the coronavirus. And although the issue of crown bonds has not yet been removed from the agenda, most likely, the Europeans will resort to other options and tools.
According to Reuters, the first measure involves the creation of reserve credit lines up to 2% of the country's gross domestic product, and a total of 240 billion euros. Loans will be issued with minimal conditions, which will primarily focus on health issues and macroeconomic reforms. In addition, Brussels plans to provide the European investment bank with additional guarantees of 25 billion euros, so that the bank, in turn, can increase lending by 200 billion euros (in addition to the existing increase in lending by 40 billion euros). Third, EU leaders should support the European Commission's plan to subsidize the wages of workers affected by the epidemic. Finally, the leaders of European countries will probably support the plan of the European Commission and the Netherlands to create an emergency support fund that allocates grants for medical supplies and medical services (total amount – 20 billion euros).
The President of the European Council of the EU, Charles Michel, assured reporters that the joint group is preparing a "very strong package" that will include various tools and mechanisms to support the European economy. That is why the EUR/USD bulls did not wait for the results of today's meeting and "trusted" the optimistic insider of Reuters.
Actually, for this reason, it is not necessary to open long positions now – because if the de facto parties do not come to a preliminary agreement, a powerful price pullback will follow for the EUR/USD pair, up to the local low of 1.0768. But if the Reuters information is confirmed, the pair can test both the lower and upper boundaries of the Kumo cloud on the daily chart (1.0990 and 1.1010, respectively). It is also necessary to monitor the dynamics of Covid-19 distribution, both around the world and in key countries. The US currency is very sensitive to the news flow on this topic. As soon as the first signs of stabilization appeared, the dollar weakened in almost all pairs, as risk sentiment increased in the market. And vice versa – as soon as the situation begins to deteriorate, the greenback will again be in favor, serving as the main defensive tool.
Meanwhile, the news regarding the spread of Covid-19 is extremely controversial, so we can not talk about a certain optimism here. On the one hand, Australia, Turkey and the US have already developed vaccines against the new virus. They are now being tested on animals, and in some cases on humans. According to experts, mass production of the vaccine may begin in a few months. In addition, it became known that in China, no fatal cases of coronavirus were recorded during the day. In some European countries, the situation has also stabilized (the press even talked about easing the quarantine regime), although the latest data are still disappointing. In particular, in Italy, indicators have been steadily declining in recent days, and the authorities have started talking about reducing mortality. But today it became known that more than 600 patients died in the country over the past day – this is over a hundred people more than the previous figure. In Spain, the number of infected patients is more than 140,000, and the total number of deaths is approaching 14,000. Despite such terrible figures, they are still below the highest figures that were recorded a few days ago. In other words, we can assume that the highest point in this country has already been reached. But the French authorities are waiting for the epidemic to peak soon. Against this background, they have tightened quarantine measures – for example, from today in Paris, you can not engage in any sport in public places from 10 am to 7 PM. The most severe situation persists in the United States – where more than 10,000 people have died from the coronavirus, and the total number of infected has reached almost 365,000.
Thus, there are not many reasons for optimism today. Therefore, the general craving for risk in the currency market can quickly be replaced by a surge in anti-risk sentiment. This suggests that in the context of EUR/USD, you can not rely only on the decline of the US currency. In the short term (today and tomorrow), it is advisable to focus on the European currency, which, in turn, will respond to the results of negotiations to agree on a 500-billion package of financial assistance. If the ministers agree on the main positions, the pair will jump to the nearest support levels of 1.0990 and 1.1010. Otherwise, there will be a price retreat to the bottom of the eighth figure or even lower – to the support level of 1.0768 (a two-week price low).
