Leaders of the EU member states will meet on Friday for a crucial two-day summit. The key topic on the agenda is the bloc’s Corvid-19 recovery plan. The EU has earmarked some 750 billion euros for a recovery fund, but there are sharp disagreements as to how to allocate these funds. Last week EU Council President Charles Michel presented a proposal in which 500 billion euros will be provided as grants, with another 250 billion in loans. However, Austria, Denmark, Sweden and the Netherlands, the more fiscally conservative members of the bloc, want most of the funds to be allocated as loans, rather than grants. These members, dubbed the “frugal four”, want to include structural reforms as part of any recovery package. On the other side, Italy and others are looking for badly-needed aid without any strings attached.
Will the leaders reach an agreement at the upcoming summit? It is doubtful, given the gaps between the sides on how to set up the massive recovery fund. Meanwhile, the clock is ticking on the EU, with the economy heading south fast. The European Commission (EC) has forecast that the EU27 economy is projected to fall by 8.3% in 2020, worse than the April forecast of a 7.5% decline. Italy and Spain, who have been particularly hit hard by Covid-19, are expected to see a drop of 10%. Earlier in the week, the EC urged leaders to quickly reach an agreement on the recovery plan, given the severe economic conditions gripping the bloc. If the leaders hearken to this plea and unexpectedly reach an agreement at the summit, we could see the euro respond with strong gains.
EUR/USD is almost unchanged on Thursday. The pair is currently trading at 1.1413, up 0.01% on the day. In the Asian session, the pair recorded slight losses but recovered in European trade. EUR/USD has posted small losses early in the North American session.
- 1.1446 is the next resistance line, followed by 1.1479
- 1.1385 is an immediate support line. Below, we find support at 1.1357
- The 10-day MA is providing support at 1.1332. A break below this level provides EUR/USD room to fall lower
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