The EU plans to intervene in markets directly to curb rising energy costs, threatening to push the Euro area's economy into a deep recession.
Things to know to trade EUR
2020-06-03 • Updated
The EUR has been climbing up over a week. Some investors expect a soon resistance, while others have only a bullish prospect. Here below you’ll find main factors that move EUR.
ECB meeting on June 4
June 4 is the big day for EUR. The ECB’s head, Christine Lagarde, will make a rate statement and hold a press conference later that day. The focus of attention is the Pandemic Emergency Purchase Program (PEPP). What is it? It’s the program that helps to support the economic activity in Eurozone amid the coronavirus. How does it work? The ECB pours more money to the market by buying assets. Think of it as an injection to stimulate the whole economy. Most analysts expect the central bank to add 500 billion euros of asset purchases to this program. That will help EUR to keep rallying. If the ECB increases the PEPP, EUR will rise. Otherwise, if the ECB adds less than 500 billion euros or doesn’t add any asset purchases at all, EUR may fall.
Elsewhere, there are some other things to look at. The ECB will unveil the inflation outlook. If Lagarde says that inflation picks up too slow, EUR will retest its support at 1.10. Otherwise, if the ECB is quite sure that inflation will pick up soon or inflations risks are balanced, EUR will rise to 1.125-1.3.
Also, pay attention on the growth prospect. If the central bank assesses the future recovery as uncertain, EUR will fall. If the ECB sees a slowdown in economic activity, EUR won’t move. But if Lagarde reveals the optimistic economic outlook and disappearing risks, EUR will surge.
Moreover, notice the ECB decision on interest rates and quantitative easing program. Most analysts expect that Lagarde won’t impose any changes for now, but she will give her guidance for lower rates for longer. If it’s like that, EUR will get an additional boost to go up.
Finally, the ECB can discuss the Targeted Longer Term Refinancing Operations (TLTRO), that provide banks with money to lend to customers. If the central bank eases TLTRO conditions, it will push EUR upward. Otherwise, if Lagarde imposes further deposit cuts, EUR will fall.
USD bearish trend
The US dollar continues falling down. Investors have doubts on the future US recovery as violent riots are destroying most American cities. What’s more, these crowds of protesters increase chances for the second wave in the USA and economic activity loss. Even Goldman Sachs, a reliable investment bank, bets against USD. According to the ING Bank, this summer EUR will test new highs near the 1.15 level.
Optimistic outlook for recovery
The market entered the summer with a really positive sentiment. Economies are reopening, lockdowns eased and rates for new coronavirus cases decreased. However, be aware that some fears of a slow recovery can make pressure on EUR.
These days EUR/USD is traded at unseen levels since mid-March. It has broken through the 61.8% Fibonacci level at 1.1165. Now it’s headed to the 78.6% Fibo level at 1.1310. Support levels are 1.1165 and 1.1065.
Follow the ECB statement on June 4 and catch the market move!
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