Gains May Face a Threat


After the recent European dispute, the pair’s gains will be sold in the coming days as Europe continues to register record numbers of coronavirus cases and is proactive in implementing restrictions.

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The EUR/USD had cautious performance during last week’s trading as gains reached the 1.1894 resistance before closing, stabilizing around 1.1858. This halted the bounce gains for the most famous currency pair in the Forex market. Sharp differences emerged among the European Union members over the historic stimulus plans that have been approved to counter the effects of the COVID-19 pandemic. Euro gains against the other major currencies have been negatively affected by the uncertainty about the future of the European Coronavirus Recovery Fund. The next multi-year budget is also in doubt which led to the decline of the euro, and some analysts believe that the drama in Brussels does not negatively impact the bullish outlook.

Sentiment in global financial markets was lifted and the resilience of risk assets was boosted by progression in the race to obtain a coronavirus vaccine. Pfizer and BioNTech said Friday that they will submit an application before the weekend for emergency use permission from the Food and Drug Administration (FDA) for the development of their vaccine.

The application begins a multi-week approval process that the two companies hope will culminate in a choppy rollout early in the new year. Although US stocks remained supported amid that data and therefore recorded new highs for 2020 last week, the euro was unable to surpass last week’s highs against the dollar, as well as other competitors. Commenting on the performance, Karen Jones, Head of Technical Analysis for Currencies, Commodities and Bonds at Commerzbank says: “The EUR/USD pair has been in a limited range for the past three months. It is seen as a bullish consolidation range, but we haven’t yet seen the breakout higher triggered. This consolidates below its November high at 1.1920 and 78.6% retracement at 1.1926, and retreats slightly, but will remain in its range while it is above the 6-month support line at 1.1682.”

The weak performance of the euro is evident in the new row between the national leaders of the European Union members, which is raising uncertainty about the coronavirus recovery fund and the next budget. Doubts have been raised over whether Brussels will be able to continue financing its operations from January 2021 due to the division between East and West over terms and conditions associated with financing, as well as future payments coming from the European Union’s regular budget.

German Chancellor Angela Merkel said that Poland and Hungary have used their veto power against the European Union’s budget in addition to its 1.8 trillion euro (1.6 trillion pounds sterling) allocations to support the European economy. Poland and Hungary voiced their objections to the budget’s internal conditions relating to the enforcement of European Union rules on “rule of law”. European Council President Charles Michel said Friday, “We need to remain united on this. This financial package is essential to the recovery of our economy. We need to implement it as soon as possible. The vast majority of member states agree to the compromise solution on the table. Some member states have indicated that they are unable to support the majority, therefore, we will continue discussions to find a solution acceptable to all. “

European Union leaders, including those of Poland and Hungary, agreed in July to grant Brussels the authority to withhold EU budget funds from member states believed not to abide by the bloc’s rules. The EU’s next-generation financing plan was hastily approved after months of wrangling among national leaders that prevented Brussels from making a meaningful financial contribution to efforts to steer economies during the pandemic crisis.

Technical analysis of the pair:

As of now, the EUR/USD general trend is still bullish. After the recent European dispute, the pair’s gains will be sold in the coming days as Europe continues to register record numbers of coronavirus cases and is proactive in implementing restrictions. The closest selling levels are currently 1.1895, 1.1935 and 1.2020, respectively. On the downside, the bears will control the performance if the currency pair moves below the 1.1745 support. I still prefer to sell the currency pair from every upward level.

The euro will be affected today by the release of Eurozone PMI readings for the manufacturing and services sectors.

EUR/USD



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