23.07.202008:51 Forex Analysis & Reviews: EUR/USD. Merkel vs European Parliament: euro froze in anticipation of another political battle

The upward momentum for the EUR/USD pair is gradually fading, although the price is still at high levels. Buyers did not have enough strength to consolidate in the 16th figure yesterday: the pair updated its 22-month high and reached 1.1602 on the wave of optimism provoked by the results of the July EU summit. But immediately retreated. Traders began to take profits at this level and even shorted, as a result of which the price fell back to the middle of the 15th figure. However, it is not just the behavior of market participants. The position of the European Parliament overshadowed the optimistic fundamental background, which threatened to block the implementation of the European Commission's anti-crisis plan. This turn of events alerted investors, but failed to deploy EUR/USD. The pair froze in anticipation of further events, because the intrigue may be resolved in the very near future.

MEPs will consider a draft resolution today, on July 23, which sets out a critical position regarding the latest decisions of the leaders of the EU countries. The MEPs opposed the draft long-term budget, which provides for the reduction of programs financed by the EU. In addition, the deputies reacted with hostility to the weak link between the allocation of funds to the compliance of countries with the rule of law. Apparently, we are talking about Hungary and Poland, which were in the spotlight at the EU summit. In particular, the Polish are being accused of the fact that the ruling National Conservative Party "Law and Justice" plans to tighten control over the media and the judiciary. In turn, Hungary's ruling party, Fidesz, is waging a massive campaign against immigrants, despite what some of the more liberal European countries see it as a violation of the law, media freedom and minority rights.

Despite these accusations (which even turned into verbal skirmishes at the summit), Poland and Hungary became the largest beneficiaries of the EU economic recovery fund among the countries of central and northern Europe. This state of affairs angered the members of the European Parliament. In addition, the MEPs do not agree with the size of the budget. They announced that the European Parliament is ready to withdraw its consent, necessary for the approval of the new EU budget, until a "satisfactory agreement" is reached. In theory, this fact could delay the creation of the recovery fund, given the strong ties between the two.

In the text of the draft resolution, the deputies, on the one hand, support the agreement on the recovery fund, but on the other hand warn that they will not accept the political agreement on the seven-year EU budget, since the proposed amount of 1.074 trillion euros is "much lower than what parliament demanded."

In other words, MEPs complain that Europe has become a victim of political agreements and blackmail of certain politicians. As you know, for the adoption of the budget and the creation of the fund, the consent of all members of the bloc (and not the simple majority) was necessary, therefore, certain compromise steps were inevitable here. But the European Parliament did not agree with such concessions, after which it threatened to become another stumbling block in a complex chain of bureaucratic agreements. European Parliament President David Sassoli announced that European Commission President Ursula von der Leyen is ready to start negotiations between the Commission, Parliament and the European Council to reach an agreement before autumn. All sectoral legislation required to channel the funds into the fund depends on interagency negotiations between them.

Thus, the euro faced a new obstacle. The position of the European Parliament, whose deputies must approve the agreements reached at the summit, exerts background pressure on the single currency. Yesterday, German Chancellor Angela Merkel admitted that Berlin (Germany currently holds the presidency of the EU Council) will have "very tough negotiations" with MEPs. Today's vote for a critical resolution may put additional pressure on EUR/USD. However, many experts are confident that in the end all the agreements reached at the summit will be implemented, since we are talking about the coronavirus crisis, which has affected all EU countries to one degree or another.

That is why the EUR/USD pair is in no hurry to go down, besieging the boundaries of the 16th figure. This "stress resistance" is also due to the dollar's weakness: the dollar index continues to fall amid the growth in the incidence of COVID-19. At the beginning of the week, the daily increase in the number of infected people fluctuated in the range of 60-65,000. This figure exceeded the 70,000 mark yesterday (+71,967 per day). Mortality from COVID-19 has once again surpassed 1,000 people a day, the highest daily rate since early June. The most difficult situation is in Florida: almost 10,000 new cases of infection are detected there every day.

All this suggests that now is not the best time to open trading positions for the EUR/USD pair: sales are risky due to the dollar's weakness, purchases are risky due to the position of the European Parliament. Traders need to wait to break the 1.1600 resistance level to consider longs towards the middle of the 16th figure. The technical picture of EUR/USD is now completely on the side of the bulls - but the fundamental factors are too controversial to open long positions.