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Euro Forecast: Outlook for EUR/USD Still Positive, Focus on Recovery Fund

Euro Forecast: Outlook for EUR/USD Still Positive, Focus on Recovery Fund

Martin Essex, MSTA, Analyst

Fundamental Euro Forecast: Bullish

  • EUR/USD continues to advance within an upward-sloping channel on the daily chart, suggesting further gains to come.
  • From a fundamental perspective, much will depend on progress at Friday’s video conference of members of the European Council to discuss the issue of a recovery fund to respond to the coronavirus pandemic, and a new long-term EU budget.

Euro price well placed for further gains

European Union heads of state and government are due to hold a video conference this coming Friday to discuss the controversial issue of a recovery fund to respond to the economic damage to the region caused by the Covid-19 pandemic, and that European Council meeting will likely determine the long-term outlook for the Euro.

A new long-term EU budget – known officially as the multiannual financial framework for 2021-2027 – will be on the agenda too but for Euro traders the more important point will be whether some kind of agreement can be reached ahead of a summit at a later date. If so, EUR/USD should benefit, along with the EUR crosses.

Ahead of that conference, the likely direction of EUR/USD will depend on both overall market sentiment and any hints as to whether the €750 billion package of grants and loans designed by Germany and France can win the support of the so-called “frugal four”: Austria, Denmark, the Netherlands and Sweden.

EUR/USD Price Chart, Daily Timeframe (February 12 – June 11, 2020)

EURUSD Chart

Chart by IG (You can click on it for a larger image)

As the chart above shows, EUR/USD has been rising within an upward-sloping chart channel since May 25 so the bias is for further gains, despite an overbought reading from the relative strength index, although any signs of a stalemate on the recovery fund would likely knock the pair back.

Like to know how to combine fundamental and technical analysis? Check out this article from the DailyFX education section.

Week ahead: ZEW

Also on the agenda this coming week is Tuesday’s ZEW economic sentiment index for Germany in June. This survey-based index is calculated from the views of analysts and investors but is not as well respected as the better-known Ifo index and therefore should not be market-moving, particularly as the hit to the Eurozone economy from the coronavirus pandemic has already been largely priced in.

--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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