EUR : Flat on EU Summit
(Thu, 16 July 2020). The European Central Bank’s Governing Council has left Eurozone monetary policy unchanged, as expected by most analysts.
In response, the Euro has, unsurprisingly, shrugged off the decision. That leaves traders in EUR/USD and the EUR crosses free to concentrate on the EU Summit that begins Friday to agree a proposed recovery plan to respond to the Covid-19 crisis,as well as a new long-term EU budget.
EURO PRICE STABLE AS ECB LEAVES POLICY UNCHANGED
The European Central Bank has left all its monetary policy settings unchanged, as was widely expected after its decision last month to respond to the economic downturn caused by the spread of coronavirus infections by increasing its pandemic emergency purchase program (PEPP) by €600 billion to €1.35 trillion, extending the horizon for net purchases under the PEPP to at least the end of June next year and reinvesting the maturing principal payments from securities bought under the PEPP until at least the end of 2022.
The ECB’s Governing Council had already made clear that it would need more time to assess the impact of the June measures so, while further ECB action is possible later this year, the Euro barely moved after its latest statement.
That leaves Euro traders free to concentrate on the ebb and flow of market sentiment, determined currently by the state of US-China relations, the possibility of a second wave of Covid-19 infections around the world and the latest corporate earnings reports. However, trading in EUR/USD early next week will likely be dominated by the outcome of an EU Summit this coming Friday and Saturday, when EU leaders will attempt to reach a consensus on a recovery fund for the EU economy.
EUROPEAN COUNCIL MEETS
The special meeting of the European Council could be fractious as the current plan is for an EU recovery fund consisting of €500 billion of grants and €250 billion of loans to help the weakest members of the bloc recover from the coronavirus pandemic. This faces opposition from the so-called “frugal four”: Austria, Denmark, the Netherlands and Sweden, and failure to agree would almost certainly send the Euro lower.
However, the ECB is keen for the EU leaders to complement its actions with fiscal policy measures and these summits tend to end with a compromise; a potential positive for EUR/USD and the Euro crosses. That seems likely this time too, although it is also possible that further talks will be needed before a final agreement is reached.
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