EUR/USD Daily Forecast – Euro Breaks to Fresh 4-Month Highs

News that EU leaders are closer to finalizing the details of the EU recovery fund has lifted EUR/USD higher to levels not seen in four months.

EU leaders have had talks over the last three days to determine the details of a stimulus package that will be worth 750 billion euros. One of the main sticking points for some has been that the package involves grants that do not need to be paid back, rather than the traditional method of issuing loans.

Charles Michel, chairman of the EU summit said that discussions so far point to 390 billion euros worth of grants.

Both European stocks and the single currency have been boosted since late last week on prospects of the EU fund.

The week ahead could be a quiet one considering the light economic calendar and the typical lack of volatility during the summer months. The highlight this week for EUR/USD will likely be the PMI reports that are scheduled to be released on Friday from both the eurozone and the US.

Technical Analysis

EUR/USD has shown consistent strength since last week although this may turn out to be a “buy the rumor, sell the fact” type of situation regarding the stimulus prospects.

On the larger time frames, the exchange rate has entered into overbought territory and it may need a fresh catalyst to extend gains from here.

This same area triggered a turn back in early March when volatility exploded in the markets on the back of the virus escalation. At that time, the pair turned slightly ahead of the 1.15 level to decline 7.5% to fresh multi-year lows below the 1.07 handle.

Over the near-term, the pair may make an attempt at the stops that have likely accumulated above the March high, in around the 1.1500 level.

Strong support for the currency pair is seen at the June high of 1.1422.

Bottom Line

• EUR/USD is extending higher after posting a fourth straight week of gains.
• The economic calendar is light in the week ahead which sheds some doubt over whether the exchange rate will be able to maintain the upward momentum.

For a look at all of today’s economic events, check out our economic calendar.