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Jignesh Davda
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EUR/USD

EUR/USD has gained in the early week as EU leaders have come to an agreement regarding the EU recovery fund after five intense days of negotiation.

The fund will provide 750 billion euros to member states whose economy have been hit hard by the Coronavirus outbreak.

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The agreement still needs to pass through the European Parliament and be ratified by all EU member states. It could take a year before those who are in need of the funds will receive it.

A major reason for disagreement was that the original proposal included 500 billion euros worth of grants, or in other words, money that does not need to be paid back. This was a sticking point for members with strong economies that have not been hit as hard by the virus.

The final agreement shows 390 billion euros worth of grants while the rest will be disbursed as loans with a low-interest rate.

EUR/USD has rallied along with European equity markets on anticipation of this deal with the single currency touching levels not seen since March earlier this week. However, since the announcement of the deal, late last night, the pair has lost some of its upward momentum.

Technical Analysis

EURUSD Daily Chart

This could be a “buy the rumor, sell the news” type of scenario and there is some risk of the pair pulling back now that an agreement has been reached regarding the recovery fund.

However, the dollar has been persistently weak which should underpin the exchange rate. The US dollar index (DXY) traded at fresh four-month lows earlier today after finally breaking below the June bottom.

The technical outlook points to strength in the currency pair although overbought levels have been reached on the higher time frames and the risk to reward does not appear to be favorable for fresh longs at this point.

Support for the pair is found at 1.1371 while near-term resistance is seen at the March top of 1.1495.

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Bottom Line

  • The rally in EUR/USD is showing signs of exhaustion
  • EU leaders have reached an agreement on new stimulus measures.

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

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