Wednesday , 6 December 2023
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Global Economy

Is the needle turning to the Euro?

By signing one of the most radical decisions taken since the establishment of the European Union (EU), the aid package of 750 billion Euros, which includes the joint payment of debts and the granting of 500 billion Euros, was put forward. However, the Netherlands, Austria, Sweden and Denmark, known as the frugal 4, did not reach a consensus on the incentive package. The thrifty quadruple meets both the size and distribution of the 500 billion Euro grant scheme, as well as the mode of payment. EU Leaders will meet on 17 July for the said incentive package and long-term budget. I have to underline that it will be a critical meeting for the market. If there is no consensus, the rapid and vicious movements that have occurred in the Euro in the last period may continue.

Euro/dollar, which tested above 1.14 with the news of the incentive package, decreased to 1.1170 with the news that a consensus could not be reached. The wavelength in the pair is high for now. Yes, the Euro was supported by the European Commission’s recovery fund proposal; but this is not the only factor. Depending on the risk appetite environment created by the epidemic in global markets, there is a shaping in the field of action. While optimism and huge liquidity steps in the market reduce the interest in the US dollar, the return of risk appetite revives the Euro. What is important in this respect is whether the increase in the number of cases is kept under control with the opening of the economies.

After China, the epicenter of the epidemic was Europe. It left a serious damage, especially in Italy. However, the latest economic data shows that the recovery in the European economy will take a shorter time than expected. However, it should not be forgotten that the Euro Zone was damaged even before the epidemic.

In short, the fate of the stimulus package will be the determinant of the main movement in the Euro. In this respect, July 17 is an important date. If the package is not approved, it will reflect negatively on the Euro. In this sense, intermediate support 1.1235 and horizontal support 1.1170 can be followed. On the other hand, if the risk appetite does not change and there is no problem in the incentive package, I expect a strengthening above the 50-month average of 1.1335. This may not happen right away. It needs some time. Therefore, in this time frame, although upside reactions are received from the support points, downward trends can be observed from the main resistance level such as 1.1335. Every dynamic can change at any time, but I think that an environment will emerge where the euro can become stronger against the dollar.

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