Last week turned out to be disappointing for the AUD bulls, despite the gap up opening on Monday after the negotiations between the Chinese and US presidents. What are the reasons behind this slide?
EU Summit: important result for the EUR and GBP
It wasn’t a secret that the European Union Economic Summit that started on June 28 took place in the environment of political crisis. A new Eurosceptic Italian government, an unsolved Brexit deal, and a migration issue poisoned the summit atmosphere. Experts predicted tensions to weigh on the market. However, results of the Summit appeared to be not so negative.
At the beginning of the Summit, the situation heated up. It seemed that the final summit document wouldn’t be signed as the Prime Minister of Italy Mr. Conte threatened to veto EU decisions because of the unsolved migration issue.
After 15-hour negotiations, countries managed to come to an agreement on the migration problem. Joint asylum processing sites and restriction of migrant moves within the bloc became the major achievements of talks. However, virtually all of their pledges would be carried out on a “voluntary basis”. Moreover, members agreed to tighten external borders and increase financing for Morocco, Turkey, and North African countries to stop migration to Europe.
As anticipated, it has had a great impact on a euro movement.
An agreement on the significant migration issue supported the euro a lot. EUR/USD managed to rebound from the support at 1.1550 and break the resistance at 1.1665. The euro needed an additional support to climb further. However, an unstable situation in Germany has weighed on the European currency. Germany’s interior minister and leader of the Christian Social Union (CSU) Horst Seehofer threatened to resign because of the conflict with Mrs. Merkel over migration. As a result, EUR/USD turn around and fell to the support at 1.1645. If there are positive economic data, the euro will be able to recover. Otherwise, the further fall is anticipated.
What about Brexit?
Of course, the Brexit deal was an important issue to discuss while the Summit. Although a small progress was noticed during negotiations, the EU's chief Brexit negotiator says about big differences in parties’ positions. The European Union sees Ireland/Northern Ireland border as the main problem to discuss. As British Prime Minister Mrs. May had to leave the Summit in early hours, the EU's chief negotiator invited UK officials to renew negotiations next Monday. The European block wants to achieve an agreement as soon as possible, but an upcoming British proposal should be "valuable and workable." The European block said that the UK is “short in time” to present their requirements. The next Brexit summit is anticipated to take place in October where the Brexit deal should be signed off. However, still, there are a lot of doubts that parties will be able to come to any decision.
Although there are strong divergences between the EU and the UK, words about the progress and the soon meeting of parties could support the pound. GBP/USD moved up and broke the resistance at 1.3180. However, it couldn’t gain a foothold there and the pair fell.
The same as the euro, the pound needs an additional support to move further. Only positive economic data and a progress on the Brexit deal will be able to pull GBP/USD up. Traders should follow news on the Monday Brexit negotiations. If there is a further progress, the pound will be able to climb further and break the strong resistance – trendline.
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