EUR/USD: EU nails down new recovery package worth €750 billion. Crucial question is what for, how, and what way EU is going
July 21, 2020 2:21 pm
The euro has still been trapped in a trading range following the news from the EU summit where the state leaders greenlighted the massive stimulus program worth almost €1.8 trillion. This decision was anticipated by most analysts. So, this outcome did not provide risky assets with solid support. Indeed, the introduced stimulus measures were not beyond those terms which had been pointed out on the agenda. In a nutshell, the EU-backed recovery fund aims to tackle the aftermath of the severe economic downturn triggered by the COVID-19 pandemic. The fund focuses on the Southern countries which have been affected the most.
Earlier, media reported that Germany and France, the most advanced EU economies, were ready to provide the lion’s share of the package. Federal Chancellor of Germany Angela Merkel and France’ President Emmanuel Macron stated that they undertake the heaviest burden of that share which will be distributed as grants. The leaders of the most influential countries make this commitment with a view to sustaining the EU integrity. It is essential to safeguard the EU amid the pandemic-driven crisis. The painstaking talks ended with the common roadmap for the economic recovery.
Breaking down the rescue package, €390 billion is meant to be provided as grants. The remaining €360 billion will be earmarked as loans. Originally, Germany and France proposed €500 billion for grants. Ailing countries will be able to apply for aid starting from 2021. The European Commission is due to allocate ailing countries, especially Italy and Spain, nearly €70 billion as grants and loans as early as next year. Therefore, the summit settled questions on the inflated budget. In fact, it takes much time to set out exact expenditures. Speaking about spending priorities, the EU authorities intend to revive those sectors which have been the worst hit by the pandemic such as the travel and restaurant business as well as other businesses in the service sector. 70% of the rescue package will be provided in 2021 and 2022. The remaining 30% will be available in 2023 after the EU authorities analyze the extent of GDP contraction in the eurozone in 2020 and 2021. The total package should be employed in full by 2026. A part of the fund will be provided as loans, so they should be repaid by 2058.
Importantly, the EU leaders did not have a row about the EU budget approval for the nearest 7 years. By the way, the budget totals €1 trillion. The bulk of that money will be spent on the infrastructure and other government projects. A separate item of expenditures is meant for large-scale environmental projects. Over €540 billion will be allocated for backing businesses and employers. Amid lockdown measures, national governments founded programs to encourage companies to keep their employees.
Despite opposite viewpoints at the beginning, the EU leaders eventually came to the common denominator. A couple of years ago, the alliance between Germany and France was on the verge of failure. Nevertheless, it survived the challenge despite the recent ruling of Germany’s constitutional court on Bundesbank’s participation in the bond buying program. As you remember, this question was settled.
The technical picture on EUR/USD remains the same. I mentioned earlier that risky assets did not advance in response to the announcement on the recovery fund approval. Amid the muted response, the currency pair is still trapped sideways with a minor change of the nearest resistance level. A breakout of resistance at 1.1460 will boost demand for risky assets that will open the door for EUR/USD to 1.1510 and 1.1570. However, the bulls will need solid support from large buyers who have not entered the market yet. If the euro does not escape from the trading range in the short term, the currency pair could go through a downward correction. It could accelerate after a breakout of support at 1.1415. This move is expected to push the pair towards lows of 1.1310 and 1.1255.
The material has been provided by InstaForex Company – www.instaforex.com
The euro has still been trapped in a trading range following the news from the EU summit where the state leaders greenlighted the massive stimulus program worth almost €1.8 trillion. This decision was anticipated by most analysts. So, this outcome did not provide risky assets with solid support. Indeed, the introduced stimulus measures were not beyond those terms which had been pointed out on the agenda. In a nutshell, the EU-backed recovery fund aims to tackle the aftermath of the severe economic downturn triggered by the COVID-19 pandemic. The fund focuses on the Southern countries which have been affected the most.
Earlier, media reported that Germany and France, the most advanced EU economies, were ready to provide the lion’s share of the package. Federal Chancellor of Germany Angela Merkel and France’ President Emmanuel Macron stated that they undertake the heaviest burden of that share which will be distributed as grants. The leaders of the most influential countries make this commitment with a view to sustaining the EU integrity. It is essential to safeguard the EU amid the pandemic-driven crisis. The painstaking talks ended with the common roadmap for the economic recovery.
Breaking down the rescue package, €390 billion is meant to be provided as grants. The remaining €360 billion will be earmarked as loans. Originally, Germany and France proposed €500 billion for grants. Ailing countries will be able to apply for aid starting from 2021. The European Commission is due to allocate ailing countries, especially Italy and Spain, nearly €70 billion as grants and loans as early as next year. Therefore, the summit settled questions on the inflated budget. In fact, it takes much time to set out exact expenditures. Speaking about spending priorities, the EU authorities intend to revive those sectors which have been the worst hit by the pandemic such as the travel and restaurant business as well as other businesses in the service sector. 70% of the rescue package will be provided in 2021 and 2022. The remaining 30% will be available in 2023 after the EU authorities analyze the extent of GDP contraction in the eurozone in 2020 and 2021. The total package should be employed in full by 2026. A part of the fund will be provided as loans, so they should be repaid by 2058.
Importantly, the EU leaders did not have a row about the EU budget approval for the nearest 7 years. By the way, the budget totals €1 trillion. The bulk of that money will be spent on the infrastructure and other government projects. A separate item of expenditures is meant for large-scale environmental projects. Over €540 billion will be allocated for backing businesses and employers. Amid lockdown measures, national governments founded programs to encourage companies to keep their employees.
Despite opposite viewpoints at the beginning, the EU leaders eventually came to the common denominator. A couple of years ago, the alliance between Germany and France was on the verge of failure. Nevertheless, it survived the challenge despite the recent ruling of Germany’s constitutional court on Bundesbank’s participation in the bond buying program. As you remember, this question was settled.
The technical picture on EUR/USD remains the same. I mentioned earlier that risky assets did not advance in response to the announcement on the recovery fund approval. Amid the muted response, the currency pair is still trapped sideways with a minor change of the nearest resistance level. A breakout of resistance at 1.1460 will boost demand for risky assets that will open the door for EUR/USD to 1.1510 and 1.1570. However, the bulls will need solid support from large buyers who have not entered the market yet. If the euro does not escape from the trading range in the short term, the currency pair could go through a downward correction. It could accelerate after a breakout of support at 1.1415. This move is expected to push the pair towards lows of 1.1310 and 1.1255.
The material has been provided by InstaForex Company – www.instaforex.com
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