FX.co ★ EUR/USD. Devious euro: better not to trade the pair ahead of EU summit results

What's happening?

Traders of the euro-dollar pair are waiting for the results of the EU summit, which was supposed to end on Saturday. EU leaders have been unable to agree on the creation of a eurozone economic recovery fund for the fourth consecutive day. The anti-crisis plan was developed by specialists of the European Commission (the EC serves as the EU government), but its implementation requires the consent of all members of the bloc. At the same time, some EU countries, including Austria, Denmark, the Netherlands, Sweden and Finland, opposed Brussels' plans to allocate 500 billion euros from the 750 billion total package to the countries most affected by the pandemic on the basis of a grant. According to representatives of these countries, these conditions look unfair to those countries that pay more money to the common European Treasury than those who receive from it. In other words, the main differences over the EU economic recovery fund are that the parties cannot agree on how much money from it will be given to the community countries free of charge, and how much – in the form of concessional loans that will need to be given back.

Against the backdrop of an empty Monday economic calendar, all the attention of EUR/USD traders has shifted on the Brussels events. Looking ahead, it should be emphasized that at the moment it is very risky to open any trading positions for the pair, despite the price increase. The pair is only growing on unconfirmed rumors that flooded the market. In particular, the Bloomberg agency disseminated information that the summit participants were close to a compromise. According to anonymous sources, Brussels offered to distribute the 750 billion aid package as follows: 390 billion in the form of grants, 360 billion in the form of loans. According to rumors, representatives of Austria, Denmark, the Netherlands, Sweden and Finland allegedly agreed to the proposed terms.

Why is it important?

The eurozone economy has been showing weak recovery efforts recently. Key macroeconomic indicators are growing amid easing quarantine restrictions. But the countries most affected by the pandemic (which are mostly located in southern Europe) cannot cope with the consequences of the coronavirus crisis on their own, without additional funds raised. Therefore, the anti-crisis plan of the European Commission, around which such fierce disputes are now being conducted, is a kind of lifeline for the European economy.

Therefore, if the EU countries make a consolidated decision, the euro will receive significant support – not only against the dollar, but also throughout the market. But otherwise, the European currency will collapse just as quickly. If, contrary to optimistic rumors, the parties do not find a common denominator, this issue will hang in the air until at least the end of August. While many EU countries (for example, Italy and Spain) need assistance, as they say, "for yesterday". It is worth noting that on the eve of today's round of negotiations, some politicians of the "top echelon" voiced optimistic rhetoric. In particular, Spanish Prime Minister Pedro Sanchez and German Chancellor Angela Merkel arrived at the summit in high spirits, declaring some progress in the negotiations. But this optimism may be premature, given the intransigence of the positions of France and Italy on the one hand, and Austria, the Netherlands and Denmark on the other.

How to trade?

As mentioned above, it is better to take a wait-and-see attitude on the EUR/USD pair now. The market is too inflated and overheated: traders react quite sharply to unverified information that can do traders a disservice - both literally and figuratively. If today's dialogue (which may drag on until late at night) ends in vain, then the EUR/USD pair will literally drop in a few hours to at least the support level of 1.1290 - this is the middle line of the BB indicator on the D1 timeframe.

A deeper decline is possible in the medium term, to the lower line of the above indicator, which coincides with the upper border of the Kumo cloud (1.1188 mark). But if the leaders of the EU countries still approve the anti-crisis plan, the pair will jump to the resistance level of 1.1510 and then consolidate within the 15th figure. Given such a high degree of uncertainty, any position (both buying and selling) looks extremely risky.