• EUR gains as the dollar weakness persist
  • EURUSD ends above 1.1300 as traders bet on further dollar weakness.
  • We have lifted EURUSD to 1.17 by the end of Q3.

After the sharp declines last week, the common currency against the dollar had a good Monday posting positive gains. The bad news to the dollar came from the Fed announcement on buying $1.3 billion individual corporate bonds. Under the latest news, the Fed is going to buy individual bonds along with the ETFs.

 Recovery: Last week’s data points from the Euro Area pointed to gradual improvement. Some G10 economies appear to be rebounding faster than in other countries. France and Germany’s 500 billion-euro fund and the ECB substantially lifting the size of pandemic QE are the critical drivers to euro currency since May. We expect the EURUSD to be a multi-month advance.

The scope for a debt deal in the EU has been improving, and it should count as a EUR positive, Andreas Steno Larsen at Nordea Markets said last week.

The managing director of the International Monetary Fund, Kristalina Georgieva, congratulated the EU for stepping up its collective response to the COVID-19 crisis with the proposed €750 billion recovery fund, but cautioned that the proposal would first have to survive “long nights of negotiations,” Euractiv reported.

  • “Let me give some kudos to Europe for stepping up individual countries’ action but also the collective action,” Georgieva said.

Long EUR against CHF, JPY, GBP, and USD.

The divergence between the US and the Eurozone is harder to discern; tough on balance Google’s data shows modestly steeper recovery trend for the Eurozone, albeit, from a weaker starting point, Westpac reported in a note on Monday.

 Data review: 

GDP decreased by 3.6% in the euro area during the first quarter of 2020, compared with the previous quarter, according to an estimate published by Eurostat.

Industrial production fell by 17.1% in the euro area and by 17.3% in the EU, compared with March 2020, according to estimates from Eurostat, In April 2020, the COVID-19 containment measures widely introduced by the Member States continued to have a significant impact on industrial production.

 Data preview:  The economic calendar this week is nearly empty. But we keep an eye on ZEW in Germany (Tue). We also focus on the EU summit, which discusses the EU Recovery Fund proposal (Friday). Disappointment could weigh on the EUR.

On the recovery fund, while the discussions start at the EU heads of the virtual state meeting, we believe the real action will take place on 9 and 10 July, when leaders will try to meet in person in Brussels, Danske bank said in the weekly note.

“Positions have been taken with the countries usually critical of burden-sharing demanding a smaller size and not grants but loans to be distributed to the harder-hit member states and sectors. We view the Commission proposal mainly as a starting point for the negotiations and think it is by no means a certainty that a deal will be struck this week,” ING said in a note. 

Technical overview

The EUR has continued to rise in the Monday session. The EURUSD and EURJPY up by 0.75% each and the EURCHF by 0.50%. But EURAUD down 0.40%. Again, the EURUSD ends above 1.1300 as traders bet on further dollar weakness.

The EURUSD has reaffirmed support since last week at 20MA. The daily oscillator and the RSI are suggesting downside momentum, whereas the same indicators on the weekly and the monthly charts suggest upside momentum. I am looking at the bright side. The trend is supportive, but the price needs to take out the recent higher at 1.1500 to confirm the trend once again.

200: For 20 months, the EURUSD has not been above to close above 200MA and EA (Weekly chart). Thrice the price had failed at the 200 exponential moving average and 200 simple average on the weekly chart. The consolidation continues thereby further. Looking forward to Q3, we believe the price action could push through that key moving averages and, we can see 1.17 odd levels in the coming weeks. The monthly chart shows that the price has been trading above 20MA (Monthly) for the first time since September 2018. A buy-the-dip strategy is giving better risk-reward in the medium term. We could expect a golden cross in Q3.

Q3 range 1.1700-1.1200, upgraded from Q2 range of 1.1500-1.1000 

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