23.07.202009:22 Forex Analysis & Reviews: EUR/USD and USD/CAD: Prospects for the European economy. Canadian dollar strengthens amid surge in inflation.

A bullish mood persists in the European currency, and so far there are no signals that the quote will undergo a reversal in the trading chart. The absence of important macroeconomics statistics yesterday, with the exception of data on the US housing market, kept a fairly even and calm cycle of growth in the EUR/USD pair.

In addition, the focus was drawn to an interview with ECB president Christine Lagarde yesterday, during which she talked about the creation of the EU recovery fund, the coronavirus pandemic and the prospects for growth of the eurozone economy.

Analysis and trading recommendations for the EUR/USD and GBP/USD pairs on July 23

In the interview, Lagarde noted that she considers it important to create a recovery fund, but it is in the correct distribution of grants and credit lines that the program will deliver success in the future. States such as Italy, Spain and Greece need the loans the most, and Portugal and Poland can also count on a number of grants to support their economies. As for the approved proportion, Lagarde considers it correct, although she expected that there will be more grants in the program.

The recovery fund, which amounts € 750 billion allocates € 390 billion for grants, while the rest is for credit lines.

With regards to the economic outlook, Lagarde notes that the expected contraction of the eurozone economy is 8.7% in 2020, which may differ for the better or worse depending on the situation. She said that there are three possible outcomes for the economy, the softer of which is in a -5% range, while the worst is at 12% loss in 2020. The recent figures, which were received at the end of the 2nd quarter of this year, so far indicate the implementation of the baseline scenario, and the subsequent outcome will depend on how the economy recovers after the coronavirus pandemic, and whether there will be a second outbreak of the disease. Lagarde also mentioned her stance on a W-shaped jump in the economy, saying that figures recorded right now suggests that there is no reason to believe that the eurozone economy will again collapse to the lows at which it was in April this year. In other words, Lagarde rules out such a scenario.

As for the quarantine restrictions that were lifted, Lagarde said that even after people were allowed to return to cafes, restaurants and public places, there are still guidelines for wearing masks and social distancing to help keep the virus under control. On the question whether the lifting of quarantine measures was too slow, she said that more gradual measures, on the contrary, helped quickly bring the virus under control in many regions, and after analyzing the situation, each country made decisions on lifting quarantine measures on its own.

Meanwhile, with regards to macroeconomic reports, the data on the US housing market continued to recover in June this year thanks to low interest rates and increased economic activity, which led to an increase in sales. A report by the National Association of Realtors indicated that sales jumped immediately by 20.7% from the previous month to 4.72 million, but compared to the same period last year, sales fell by 11.3%. Economists expected the index to grow by 21% in June.

As for the technical picture of the EUR/USD pair, a slowdown in the area of the 16th figure is expected, because of which traders paused to analyze further actions. A rapid appreciation of the European currency without support from macroeconomic statistics may end abruptly, and a breakout from the level of 1.1600 would result in a test of the 1.1650 and 1.1710 highs. But if demand on the euro declines, a downward move will occur, in which the first major support level will be 1.1510. Nevertheless, even a breakout from the range will not be able to scare new buyers of the euro, who will show serious activity even after a drop to the support level of 1.1460, where the lower limit of the current upward channel passes.

USD/CAD

The Canadian dollar continued to rise amid the publication of good data in Canada's annual inflation. The report showed that inflation returned to positive values in June, thanks to a jump in food and housing prices. Statistics Canada said that the general consumer price index rose by 0.7% in June, falling by 0.4% in May. Economists expected the index to rise by only 0.2% in June.

Such a recovery is a good sign that the economy is recovering, in which the gradual stabilization of inflationary pressures will lead to a revision of monetary policy towards higher interest rates, which will support the Canadian dollar and lead to an even greater decline in USD/CAD.

Thus, for the technical picture of the USD/CAD pair, the bears are aiming for a test of the support level 1.3350, a breakout of which will strengthen the bearish trend and lead to a renewal of lows in the levels 1.3275 and 1.3230. In addition, growth is limited by the strong resistance level of 1.3480, where sellers of the US dollar traded yesterday.