FX.co ★ Overview of the EUR/USD pair. July 21. Negotiations on the distribution of the recovery fund are continuing. But there are other issues where the parties do not have a consensus.

4-hour timeframe

Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - upward.

CCI: 100.7928

The first trading day for the EUR/USD pair was held in multidirectional movements. If in the first half of the day the European currency continued to rise in price, then in the second half of the day it began to decline. However, at the same time, the pair's quotes continue to be located above the moving average line directed upwards. Therefore, the upward trend, although not strong, continues to persist. In principle, the euro has been trading higher over the past week. Earlier (long before the EU summit), we repeatedly said that we should look for the reasons for the appreciation of the euro currency exclusively overseas. Because in the European Union, no optimistic information is published, and there is no encouraging news. But the situation in America raises serious concerns, both in epidemiological and economic terms. We would like to remind you once again that it is impossible for half of the US population to get sick with coronavirus (even in a mild form), and the economy will grow at the same time. Thus, we believe that the very difficult situation with the "coronavirus" in the US is the true reason for the fall of the US currency in recent weeks. The EU summit is certainly a very important event. However, we do not believe that the euro is now strengthening "on expectations of a positive outcome". If you look closely at the chart of the currency pair, it becomes clear that the nature of the movement has not changed completely. The same frequent corrections, the same weak upward movement. Thus, we believe that the EU summit has absolutely nothing to do with it, and traders frankly ignore it. Moreover, there is no positive news from this event. But there are a lot of disappointing messages. The very fact that the politicians failed to reach an agreement within the agreed two days is a very bad call. The summit has been extended for a fourth day, and a new round of talks will begin later today. In fact, everyone is only interested in the so-called 750 billion euro fund for economic recovery after the pandemic. This amount has already been approved by all EU members, but five countries are opposed to the system of dividing this amount into grants and loans. Finland, Austria, Denmark, Sweden and the Netherlands are opposed to giving as much as 500 billion euros to the most affected countries and economic sectors free of charge. These countries believe that the entire amount should be given to those in need in the form of loans, but not in the form of gifts. And, as we wrote earlier, this position can be understood. At the same time, the President of the European Council, Charles Michel, lowered the offer first to 450 billion euros, and later to 400 billion euros, in order to convince the "lean four" and Finland to agree to the proposed financing option. Moreover, the countries of the "lean four" and Germany are even offered certain discounts in future contributions to the European budget. However, it seems that this proposal was left without approval. As a result, French President Emmanuel Macron said that he was ready to leave the summit rather than "sign a bad agreement".

Meanwhile, according to other information, Hungarian Prime Minister Viktor Orban told reporters that the number of disputed issues has been reduced to 4, but they may require another week of discussion. "Now there are four outstanding issues. This means that the European Council and Charles Michel did a good job, because at the beginning of the summit there were several dozen questions. We have a good chance to reach an understanding," Orban said. Also, the Prime Minister of Hungary said that his delegation had booked a hotel for a week and were ready to negotiate for at least a whole week, so as not to return home with nothing. The first point of contention is the structure of loans and grants in a package of 750 billion euros. "The best thing to do is to give money to those who need it most and let them spend it as they see fit, instead of conducting complex bureaucratic discussions," Orban commented on this point. The second is the amount of payments that each country will receive according to the recovery fund. The third is the payment of compensation payments as part of the formation of the EU's general budget for 2021-2027. Orban calls this system a privilege for rich countries, which these richest countries do not want to get rid of yet. The fourth issue is the rule of law.

How can we comment on the preliminary results of the summit? First, the parties are likely to reach a consensus. If the summit has already been extended for another two days and no one goes home, then the parties see that it is possible to come to a common agreement, the main thing is that each country is ready to compromise. Second, even if the summit ends in nothing, it will only mean an additional delay for the European economy. Of course, European leaders like to throw "loud phrases" and the phrase "the European Union is on the verge of death" has already been repeated several times at the summit, but we do not believe that this is really true. A 10% reduction in GDP (the maximum among EU countries) is not a death sentence. A serious blow to the economy - yes, but not death. Accordingly, discussions in absentia may continue for several more weeks, after which a decision will be made precisely at the next summit. Third, the "lean four" countries are most likely not going to try to reduce the amount of grants to 0. Most likely, their goal is to reduce this amount as much as possible, so sooner or later they will probably support Charles Michel with his next proposal. Well, the euro currency in any case continues to strengthen against the US currency in general. The "coronavirus" epidemic continues to rage in the United States, and the US government continues to calm the media with expressions that make many even more nervous. According to the latest information, Donald Trump continues to read his mantra that in America they just do a large number of tests, and the majority of patients have a mild form, which is expressed only by a runny nose. Based on all this, we believe that the euro continues to grow more expensive due to events in the US, and not on the sidelines of the European summit.

On the first trading day of the week, the European Union and the United States did not publish any important macroeconomic reports. On Tuesday, July 21, the situation with the calendar of macroeconomic events will not change at all, it is empty. Thus, traders will continue to follow the news from the European summit and from across the ocean about the spread of the COVID-2019 virus.

The volatility of the euro/dollar currency pair as of July 21 is 69 points and is still characterized as "average". Thus, we expect the pair to move today between the levels of 1.1371 and 1.1509. Turning the Heiken Ashi indicator upward will signal the end of the next round of downward correction within the ascending trend.

Nearest support levels:

S1 – 1.1414

S2 – 1.1353

S3 – 1.1292

Nearest resistance levels:

R1 – 1.1475

R2 – 1.1536

R3 – 1.1597

Trading recommendations:

The EUR/USD pair has started a new round of corrective movement. Thus, it is now recommended to consider buy orders with targets of 1.1475 and 1.1509, but after the price rebounds from the moving average. It is recommended to open sell orders no earlier than when the pair is fixed below the moving average line with the first targets of 1.1353 and 1.1292.