EUR/USD to rise on an ambitious recovery scheme

This week, EUR/USD rocked and rolled between recovery hopes and coronavirus fears. More significant US economic indicators, the European Central Bank's meeting, a leaders' summit and COVID-statistics are all in the mix in the next week, FXStreet’s analyst Yohay Elam reports.

Key quotes

“The ECB is set to leave its interest rate and bond-buying schemes unchanged on Thursday. Christine Lagarde hinted at inaction and also cast doubt that EU leaders will make a decision on the EU recovery fund in their summit that begins on the following day. She may dedicate her press conference to nudging policymakers to approve the ambitious plan – which includes €500 billion in grants funded mutually by the EU Commission.” 

“German Chancellor Angela Merkel urged fellow leaders to get behind the ambitious scheme. However, Austria, the Netherlands, Denmark, and Sweden are reluctant to award money to countries they see as profligate. Investors expect leaders to fudge an acceptable compromise in all-night discussions – something that has happened several times in the past. If the summit settles for a meager plan which mostly leans on loans rather than grants, the euro has room to fall. If Berlin and Paris get most of what they want, the common currency could advance.” 

“States' COVID-19 statistics will likely gain even more traction, as they impact consumer behavior and also trigger local lockdowns. Hospital capacity and deaths will likely replace the number of cases – which has been becoming constrained due to a lack of sufficient laboratories.”

“The economic calendar is busy, with inflation figures set to show a modest pickup from the lows in June. Industrial output figures for June are also set to show an ongoing recovery from the lows, but the main dish awaits on Thursday – retail sales. Shoppers sent sales up 17.7% in May – an impressive rebound in absolute terms but far from enough to make up for the downfall in April and March. Another increase is on the cards.”