EUR/USD: Path of least resistance remains to the downside
- EUR/USD is flashing green, but upticks could be short-lived.
- The EU failed to agree to the stimulus package last week.
- Eurozone GDP data to highlight weak growth across the region and boost ECB stimulus expectations.
Despite Friday's positive performance, the path of least resistance for the EUR/USD pair remains to the downside. The European leaders failed to agree on a comprehensive coronavirus stimulus package, leaving the European Central Bank (ECB) in a virus fight.
"Europe is a mess after European leaders failed to reach an agreement to provide comprehensive economic relief for the Eurozone," noted BK Asset Management's Borish Schlossberg on Friday.
German Chancellor Merkel expressed willingness to offer major financial support for a coronavirus recovery package worth as around EUR 1 trillion. On the other hand, though, the leaders could not reach a consensus on the size of the fund and whether it should distribute the burden of financing on those countries that run fiscal and trade surpluses.
"That precisely what needs to be done if Europe is to have any chance of surviving as a single economic block," Schlossberg said. However, Germany and the Netherlands continue to oppose debt sharing.
As a result, some observers, including Danske Bank's analysts hold reservations as to the sustainability of EUR/USD upticks. The pair hit a 23-day low of 1.0727 on Friday only to end the final trading day on a positive note at 1.0822. At press time, the single currency is trading near 1.0830, representing marginal gains on the day.
The pair is likely to track the broader market sentiment on Monday, as the data docket is empty. BK Asset Management's Kathy Lien expects the single currency to have a tough time ahead of the Eurozone GDP report, scheduled for release later this week.
"Growth across the region will be very weak leading everyone to wonder if the ECB will boost stimulus on Thursday. ECB President Lagarde believes the economy could shrink as much as 15% this year. Unfortunately, they are not expected to do more than broaden the types of collateral they accept to include junk bonds, which would pave the way for ongoing purchases of Italian debt," noted Lien.
Technical levels
"The pair would need to recover beyond 1.0900 to reduce chances of a steeper decline, an unlikely scenario at the time being," said FXStreet's Valeria Bednarik.
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
