22.06.202009:45 Forex Analysis & Reviews: EUR/USD: disappointment for the euro and hopes for the dollar

A new trading week began for the EUR/USD pair on a moderately major note. However, both the "European" and the "American" currencies have lost their former advantages, which, according to experts, are now quite difficult to restore.

Last week, the euro was mostly declining, while the dollar was experiencing a series of ups and downs, making the market worry. The inconsistency of the USD prompted experts to update some short and medium-term forecasts. Analysts and market participants are concerned about the future prospects of the US currency, which is foreshadowed by a sharp collapse, then an unprecedented rise. Most are inclined to weaken the world's leading currency, so its rival in the EUR/USD pair will get an additional chance to rise.

Moreover, financial issues are currently very relevant for the European currency, which the dollar was able to solve relatively peacefully. It can be recalled that the US Congress recently adopted a number of programs to stimulate business and the population in the amount of more than $ 3 trillion and, it seems, does not think to stop there. According to analysts, the US monetary authorities are ready to introduce new financial programs if necessary. The market expected similar decisiveness from European leaders, but here, the European economy and the single currency were disappointing.

A number of experts and market participants pinned certain hopes on the EU summit, which took place last Friday, June 19. However, it was inconclusive, disappointing and alarmed investors. It can be noted that the main problem of the meeting was the issue of financial assistance in the amount of € 750 billion to European countries most affected by the COVID-19 pandemic.

Many experts argued that one should not expect vital decisions from the summit. And so it happened in the end: at first, representatives of European states approved a plan for economic recovery of € 750 billion and a draft seven-year budget for 2021–2027, then "stalled". Almost immediately, there were many reasons that impeded the implementation of these projects, including serious disagreements among the members of the Euroblock regarding financing and distribution of funds. For example, representatives of the so-called "modest four" - Sweden, Denmark, Austria and the Netherlands - consider the agreed amount of the fund and an additional amount of € 1.1 trillion to be very large, and they also fear corruption in the distribution of financial assistance.

An important nuance in the allocation of funds intended for the restoration of the European economy was the fact of their loan on the commercial capital market. This may complicate further debt payments, and they will have to be returned until 2058, that is, almost 40 years. The receipt of money and its return is planned to be made by increasing taxes, which will go directly to the EU treasury, bypassing the countries in which they will be collected. This decision is supported by France and Germany, and the "modest four" are opposed. These countries vote for funds to be provided not as grants, but as loans. Given the current contradictions, the EU summit participants are ready for another meeting, where they expect to make a final decision on financing issues.

Such a "roller coaster" strongly shook the position of the single currency, which entered a downward spiral in the second half of Friday. The obstacle for it was the issue of providing financial assistance to the economies of the Euroblock, which hung in the air. This had an extremely negative impact on the dynamics of the EUR/USD pair , which declined to critical 1.1177 by the beginning of this week. However, on Monday morning, June 22, the pair came to his senses a bit and tried to overcome the psychologically important level of 1.1200. To date, the EUR/USD pair is trading within 1.1198 - 1.1200, and a lot depends on whether the pair can "jump over" this barrier.

Specialists at TD Securities, noting that the Eurocurrency could not hold above the level of 1.1200, expect a decline in the EUR/USD pair in the short-term. The company draws attention to the unfavorable long-term prospects of the dollar and recommends buying EUR/USD in case the pair returns to the level of 1.1000.

Against the dollar, political problems are currently playing around the worsening racial crisis in the United States. TD Securities believes that the new outbreaks of COVID-19 will contribute to further strengthening of the US currency, which is an alarming signal for the markets.

An additional driver of the USD decline may be the almost "bloody" battles related to the US presidential election. According to analysts, during this period, America is experiencing a serious heat of passion, which is now being formed around two possible candidates - Democrats Joe Biden and Bernie Sanders. At the same time, the current head of state, Donald Trump, is also not going to give up. Experts sum up that the main battle is still ahead: both for the presidential seat, and for the further leadership of the dollar and the recovery of the euro.