EUR/USD moves higher as EU approves 540 billion euros in virus stimulus

Written by: Michael Harris
April 10, 2020
  • Euro zone agrees on a stimulus package worth 540 billion euros to cushion the blow from the COVID-19 outbreak
  • Still, the EU member states have no agreement on how to share the financial burden
  • EUR bulls are on the verge of breaking a weekly resistance, which should pave the way for a move above $1.10

EUR/USD has gained around 1.3% this week as the Eurozone finally managed to approve a 540 billion euros stimulus package to fight the consequences of the COVID-19 outbreak and national lockdowns. 

Fundamental analysis: Agreement reached, investors not convinced

On late Thursday night, EU finance ministers clapped via the video link, as they finally managed to agree on a new coronavirus stimulus package, consisting of three programmes, worth 540 billion euros.

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“We can breathe a bit more easily,” Nadia Calviño, Spain’s economy minister, told local Cadena Ser radio.

However, analysts are not too convinced that the agreement has resolved many questions, including the key topic – how to share the financial burden – that made the negotiations so hard in the first place.

“Way too early to celebrate the Eurogroup’s deal,” said Mujtaba Rahman, Eurasia Group’s managing director for Europe.

″(The) signal of mutual support is not as strong as it should have been,” economists at Berenberg bank said in a research note. 

“Don’t expect this thing to fly any time soon,” ING said in a research note before adding that more arguments over debt mutualisation, or other funding sources are likely to happen.

The agreement opens the door for issuing common EU debt to boost economic growth once the national lockdowns and the state of emergency are lifted. However, the Netherlands and Germany insist that “corona bonds” – a financial instrument that would combine debt securities from the 19 different countries that share the euro – aren’t part of the agreement.

Nine EU countries, including Italy and Spain have long called for the issuing of “corona bonds”, an idea strongly opposed by financial conservatives, namely Germany, Austria, and Netherlands. 

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Technical analysis: EUR/USD on the verge of a break out

EUR/USD is currently trading around 1.3% higher on the week, recovering almost half of the losses from the previous week. As seen in the chart below, the price action is on the verge of breaking the descending trend line that connects two previous swing highs.  

EUR/USD daily chart (TradingView)

On the upside, the buyers will aim to push the price towards the intraday resistance at $1.0990, before they are able to test a confluence of resistance in the context of the two key moving averages between $1.1030 and $1.1060. If broken, the descending trend line will then start acting as a support for the bulls. 

Summary

EUR/USD has jumped around 1.3% this week following last week when it incurred losses of nearly 3%. The euro bulls were boosted by the agreement reached between the EU finance ministers on a 540 billion euros worth stimulus package to cushion the blow from the COVID-19 outbreak.