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EU takes steps towards transfer union – EUR/USD to 1.1200?




May 26, 2020 16:00

In one of our last articles, we looked at the German Constitutional Court’s ruling that some ECB actions, in regards to Asset purchases regarding the QE, are unconstitutional and thus not valid in Germany, since the ECB decisions are not backed by the EU treaty.

As a result, we developed a bearish Euro scenario, and expected an attack at the current yearly lows around 1.0630 and even a break lower with a minimum test of 1.0500 likely, as long as we trade below 1.1000.

Since then, the Euro-tide has turned over the last week of trading, and we now consider the Euro bullish.

Germany and France propose 500 billion EU recovery fund amid Coronavirus crisis

On May 18, German chancellor Merkel and French President Macron proposed a 500 billion EU recovery fund that would offer grants to European Union regions and sectors hit hardest by the coronavirus pandemic.

In fact, one could see this as a first step towards a transfer union and in addition to the massive monetary stimulus from the ECB which has increased its balance sheet as of April 17 to 5,28 Trillion EUR bullish for the Euro.

This is probably especially true against the US dollar. The Greenback should stay under pressure and while we expect European yields to keep on rising, a sustainable drop in 10-year US Treasury yields below 0.60% would narrow the yield differential between EU and US bonds further, favoring gains in the EUR/USD.

How can we trade the EUR/USD in this environment?

The EUR/USD traded within a range between 1.0750 and 1.1000 since the beginning of April, attacking the region around 1.1000 over the course of the last week of trading.

When trading a range breakout, a projected target can usually be found by unfolding the range in the direction of the breakout.

That said, a potential target of a bullish breakout could be found around 1.1200/50.

Since the EUR/USD failed with its first breakout attempt last week, a more aggressive look for a re-test of the region around 1.0880/0900, going Long against this region and anticipating a break above 1.1000 from here.

In both case the setup would not be valid anymore once the EUR/USD drops below 1.0730 again:

Source: Admiral Markets MT5 with MT5-SE Add-on EUR/USD Daily chart (between March 25, 2019, to May 22, 2020). Accessed: May 22, 2020, at 10:00 pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the EUR/USD fell by 10.2%, in 2016, it fell by 3.2%, in 2017, it increased by 13.92%, 2018, it fell by 4.4%, 2019, it fell by 2.2%, meaning that after five years, it was down by 7.3%.

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Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter “Analysis”) published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and are in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analyses is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter “Author”) based on the Author’s personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for the prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies herein or that losses in connection therewith mayor shall be limited.
  7. Any kind of previous or modeled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
  8. The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.

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