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Is there upside for the EUR/USD?

The European Commission wants to borrow €750B to help European Nations less capitalized, pushing the EUR/USD higher.

This is on the back Germany and France’s proposal for a €500B fund intended to be given as grants to poorer nations such as Italy and Spain. Financial Times estimate that Italy could be in line to get close to €82B The extra €250B was suggested by the European Commission in order to fund loans to member states. This tested a critical 1.099 resistance level on the EUR/USD as bulls rode the rally up on the good news.

How is the European Union going to pay for the grants?

European Commission President Ursula von der Leyen is proposing a myriad of taxes to pay for this fund. These taxes include a tax on plastic, carbon usage and big tech, raising billions of euros a year.

What is the long term view on the EUR/USD?

As many countries, Europe is being propped up with billions of dollars of quantitative easing. Historically, quantitative easing has put pressure to the downside for the currencies the central banks directly deal with. However, if all the central banks are implementing unprecedented quantitative easing measures, what will dictate the which currency outperforms? It is highly likely that the currencies that outperform are those whose governments lead and excel in their long term actions with regards to the Coronavirus.  If we take a look at the reutrns of some currencies against the USD

Timeline is from when the USD was at its peak ie. When risk off was prevalent. It is up to you to decide how well the respective governments have done with regards to their response to the Coronavirus..

It is highly likely that the currencies that outperform are those whose governments lead and excel in their long term actions with regards to the Coronavirus.  If we take a look at the reutrns of some currencies against the USD,

We can see that debatably, the currencies that have had the largest returned implemented effective Coronavirus policies. The risk off rally giving the USD its initial boost have mostly disappeared as risk on sentiment starts in the markets. It is obvious that there are more factors in play, however it is interesting to note the comparison.

Are you bullish on the EUR/USD?

Anish Lal has great technical analysis on the USD/MXN and it’s wild swings. You can watch it here.