The Covid-19 pandemic has caused an economic meltdown across European economies, with the European Union forecasting a drop of 7.9% in GDP for the bloc. This has forced the European Commission (the executive branch of the EU) to take drastic action in order to deal with this unprecedented economic crisis. Back in May, the EU announced it would borrow some 750 billion euros for a recovery plan for EU economies. Predictably, in a bloc of 27 members, there are differences of opinion as to how the funds should be allocated. There are also divergences as to the proportion of the funds that should be distributed as loans and how much as grants. The European Commission has suggested that 500 billion euros should be grants, but countries such as Austria, Denmark and the Netherlands favor a larger share of loans instead.
Aside from the ravages of Covid-19, the looming departure of the UK from the club will also cause an economic shock for the UK’s neighbors. Ireland and Belgium have both asked Brussels for financial support in order to deal with Brexit. On Friday, European Council Charles Michel announced a EUR 5 billion emergency fund for EU members impacted by Brexit. Michel is trying to placate as many members as possible, as negotiations continue over the recovery fund. Given the sharp differences in the bloc over the fund and the EU budget, the euro could face a bumpy road in the coming months.
EUR/USD has started the week in positive territory. The pair is currently trading at 1.1337, up 0.35% on the day. In the Asian session, the pair recorded slight losses but recovered in European trade. EUR/USD is steady early in the North American session.
- 1.1362 is an immediate resistance line.
- 1.1290 is the first line of support.
- The 21-day MA is providing support at 1.1261. A break below this level provides EUR/USD room to fall lower