EUR/USD. The EU summit ended in nothing. Providing assistance to the European economy may take months.

4-hour timeframe

Exchange Rates 20.06.2020 analysis

The last trading day of the week for the euro/dollar currency pair was held in the same downward trading as the entire week. The fall of the European currency can not be called strong, however, it is confident and almost daily. However, we have repeatedly warned that the previous strengthening of the euro currency is completely unjustified, which means that the euro will have to repay its debts sooner or later. This week, this is exactly what we are seeing. At the moment, a new sell signal has already been formed on the Ichimoku trading system, which means that the chances of continuing the downward movement have increased. On the hourly chart (considered in the “burning forecasts”), the pair continues to trade inside the descending channel. Thus, the bears continue to hold the market in their hands. As for the prospects of the currency pair, it is extremely difficult to outline them now, since traders continue to ignore most of the macroeconomic information. Many fundamental topics can hypothetically have an impact, but in general, the “coronavirus” pandemic and the crisis associated with it continue to rage in the world.

Yesterday was quite boring in terms of macroeconomic statistics. However, there was still one event that made traders look forward to its results. Yesterday, the EU summit was held, during which several pressing issues and problems were resolved, one of which is the provision of assistance to the European economy for 750 billion euros. A day earlier, we said that it is unlikely that any decisions will be made at this summit. Most likely, the EU leaders will meet (not even meet, because the summit was held in the format of a videoconference), discuss and disperse until the next time. In principle, everything turned out that way. First, the head of the European Parliament, David Sassoli, called on the heads of state to approve the 750 billion euro economic recovery plan and the draft seven-year budget for 2021-2027. Mr. Sassoli immediately said that it would not be possible to approve these documents at the current summit, as there are serious disagreements over funding and allocation of funds, so another summit will be needed in the future to make decisions on these issues. Therefore, all those who were waiting for concrete decisions could go to bed at this moment. Also, Sassoli stated: “The recovery fund proposed by the European Commission is a very good starting point and we hope that the summit will accept it and we will start negotiations. This fund and the budget plan for the next 7 years should be the engines of economic recovery in the European Union.” Also, it became known that 750 billion euros are planned to be taken on the commercial capital market, and this money will be returned until 2058 by increasing taxes that will go directly to the EU Treasury, bypassing the coffers of the countries where they will be collected. “The European Parliament requires clear clarity on the issue of funding the fund. We will have a great debt to future generations. We must clearly understand how this debt will be paid, what taxes are proposed, and when,” added Sassoli. Emmanuel Macron, in turn, said: “If Europe gets bogged down in lengthy and overly complex budget discussions, it will send a bad signal about its effectiveness and ability to respond adequately to the challenges it faces.” The French President called for the restoration plan to be approved as soon as possible. European Council President Charles Michel said that the parties will continue discussions at the next summit in mid-July in Brussels.

Thus, no decision was made at the already concluded summit (except for the extension of sanctions against Russia), and the problem (the stumbling block) remains the same – Austria, Denmark, the Netherlands, and Sweden insist that funds should be provided not in the form of grants, but the form of loans. It seems that it is on this not at all optimistic information that the euro currency resumed its fall in the second half of Friday, although at first, it intended to start an upward correction. Unfortunately, the issue of providing financial assistance to the EU economy is a “cornerstone” issue. You can’t just postpone it for a year or two, or reduce the size of the fund or refuse to help the so-called “four misers”. The European Parliament and the European Council will have to continue to look for all possible ways to reach an agreement simply because without this money, the European economy will continue to shrink, and countries like Italy, Spain, Portugal, and Greece will be on the edge of a precipice and the verge of default. Since the EU government cannot simply allow several countries to go bankrupt, it will have to find ways to solve this problem. And the longer this process continues, the more the EU economy will shrink without financial assistance.

Meanwhile, riots continue in the United States caused by a racist scandal related to the death of George Floyd at the hands of a white police officer in Minneapolis. Recently, the topics of “coronavirus” and mass rallies and protests in the United States have disappeared from the front pages of periodicals. However, this does not mean that they have ended. There is reason to assume that in recent weeks, the US dollar has become cheaper due to these events, too. Although the United States remains the world’s leader in the number of diseases from the “coronavirus” and that the virus continues to spread in this country, official sources say that due to protests and rallies, a new outbreak of the disease has not started. To be honest, this is very difficult to believe, given the fact that the COVID-2019 virus in the United States spread perfectly and easily and without mass gatherings of people that took place in many cities and states. However, this is official information.

There was nothing else interesting for the EUR/USD currency pair on Friday. So far, the entire downward movement can be called no more than a correction, since the previous growth was much stronger. Both in the United States and the EU, there are a huge number of problems now. In Europe, there are mainly problems of a financial nature. In the United States, this is easier, since the US Congress has already adopted several programs to stimulate businesses and the population for more than three trillion dollars and it seems that it is ready to accept new programs, despite the growth of the national debt to 26 trillion dollars. But in the United States in the face of a political crisis that is unlikely to end soon, or rather even months. America is now entering the phase of election campaigns, so all the heat around Joe Biden and Donald Trump is still ahead. The US President, by the way, is going to ride around the country with election rallies, clearly not worried about the safety and health of people during the epidemic.

Trading recommendations:

In the 4-hour timeframe, the euro/dollar pair fell on Friday to the support level of 1.1171, and in general, continues to move down. Thus, short positions with the following goals of 1.1088 and 1.0962 are currently relevant. It is recommended to return to buying the euro currency not before fixing the price above the Ichimoku cloud and the Kijun-sen line. For the “linear regression channels” system – not before overcoming the moving average line.


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