EUR/USD: Reimposing restrictions to lock euro recovery – Westpac

Fear of summer vacation-related increases in COVID-19 cases may mar the recovery path in Europe. Further reimposing of restrictions could dampen EUR’s recent gains, according to economists at Westpac. 

Key quotes

“The European summer of lockdown easing has been scarred by resurgent COVID cases from Spain and France and through Croatia, Greece and other Eastern European nations. Concerns over ‘reckless’ youths with limited symptoms spreading COVID more widely may trigger greater reimposing of travel and social distancing restrictions and so dampen the path of recent activity rebounds.” 

“The process of ratifying the EU Recovery Fund is effectively on hold at present, but media reports of the Frugal Four meeting to discuss how to ensure their related budget rebates if the Recovery Fund proceeds have raised some concerns that the path to ratification may be less smooth than hoped.”

“The coming seven days will see the release of critical surveys, notably flash Aug PMIs and Germany’s IFO. Any sign of COVID concerns dampening activity could see a slide in confidence and add to the risk of retracements of the recent uptrends in EUR/USD even if the underlying trend of USD weakness is likely to persist into the US election.”