EUR/USD falls as EU funding concerns converge with lockdown risks

Written by: Crispus Nyaga
November 19, 2020
  • The EUR/USD price retreated today as traders refocused on the EU funding crisis.
  • Hungary and Poland have threatened to veto the 7-year budget over rule of law clauses
  • The rising risk of lockdowns in the US has also led to an overall strong dollar.

The EUR/USD is down by 0.20% as an important virtual summit in the European Union gets underway and as the number of Covid deaths in the US cross the 250,000 mark. It is trading at 1.1830, which is 0.55% lower than this month’s high of 1.1893.

EUR/USD hourly chart

EU leaders deliberate on budget

The euro is falling today as market participants watch out for the ongoing virtual summit of European leaders. They are deliberating the 7-year €1.8 trillion budget and the €750 billion recovery fund that was passed in July this year.

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The core of the current dispute is that two countries – Poland and Hungary – have blocked the budget, which requires all members to vote. The two member states are opposed to a clause passed by the European parliament that tied the funds to democratic norms. Their leaders argue that the clause poses serious implications to the sovereignty of their countries. A Bloomberg editorial summarised the situation well saying:

“Either the bloc drops a mechanism that would tie some of its funds to the rule of law, which Budapest and Warsaw are accused of dismantling, or the EU can say goodbye to its next seven-year budget and an associated stimulus program to overcome the coronavirus recession.”

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US Covid deaths and cases rise

The EUR/USD is also falling, in part because of the stronger US dollar, as the Covid situation in the United States gets out of control. The country confirmed more than 172,000 cases yesterday and more than 1,900 deaths. That brought the total deaths to more than 250,000, which is equivalent to the world total.

As such, while strong progress has been made about vaccines, analysts are worried that the situation could be getting out of hand. That’s because, even when the vaccines are cleared, it will take several months before everyone in the country receives a shot.

At the same time, many states in the country have started implementing new lockdowns, which will inevitably slow the recovery. Indeed, economic numbers released this week has been mixed. For example, today, data from the Labour Department showed that the number of initial jobless claims rose by more than 742,000 last week. This number was higher than the previous week’s increase of 711,000.

Similarly, on Tuesday, numbers showed that US retail salesrose by just 0.3% in October, the lowest pace since May. And yesterday, data revealed that US building permits dropped to 1.545 million in October.

EUR/USD technical overview

EUR/USD chart

The hourly chart shows that the EUR/USD has been on a strong downward trend since Tuesday this week when it reached a high of 1.1895. Today, the pair reached an intraday low of 1.1816 and formed a weak hammer pattern.

The price is between the first and second support levels of the Andrews pitchfork. It is also below the neckline of the head and shoulders pattern at 1.1843.

The average directional index has moved to a high of 30, which is a sign that the downward trend is getting stronger. As such, my view is that the pair will continue falling to at least 1.1800.

Still, the situation could change, especially if there is a breakthrough in Europe. To take advantage of this volatility, you can open a trading account with one of our preferred spread betting forex brokers.