EagleFX: Spotlight on the Euro in July 2020

After an immensely challenging few months, Europe has finally shown hopeful signs of economic recovery. Many traders have had an optimistic outlook on the single currency as Europe lifted lockdown restrictions and began to re-open several sectors of its economy. With tourism given the go-ahead by several European countries in time for the summer holidays and banks injecting generous monetary stimuli into regional economies, the Euro has undoubtedly taken a positive turn.

However does this mean that traders are going long on the Euro? Not necessarily.

The EUR/USD has been oscillating around the 1.12 level since the U.S. Independence Day weekend, hitting a two-week high of 1.1311 on Monday 6th July. Market sentiment has been divided between the bears and the bulls, as EUR/USD has failed to break above the 1.1350 level for the third time. On one hand, improved performance of global markets and Europe’s handling of the Coronavirus has boosted the Euro upwards. On the other hand, skeptics argue that this recovery is not happening quickly enough. 

A Record Rebound for Eurozone Retail Sales

The two-week high came after an announcement on Monday 6th July that the Eurozone’s retail trade rose by 17.9% from the previous month, signalling a record recovery from two months of damaging drops in sales. This jump exceeded the predicted 15% rise, which could indicate that Europe’s economic situation is recovering faster than expected. 

According to the monthly Eurostat report, non-food related product sales rose by 34.5% in June, after a sharp fall of -16.7% reported in April, with textiles, clothes, furniture, electrical goods, computer equipment, books, mail orders and pharmaceutical and medical goods. Also, sales for food, drinks and tobacco rose by 2.2% after a previous fall of -5.9% in April. 

Germany’s Road to Recovery and EU Budget Plans

News that Germany’s factory orders increased by 10.4% in May after a sharp fall of 26.2% the previous month before the country lifted several coronavirus restrictions added to investors’ positive outlook on the Euro. Yet, even after this reported increase, numbers remained below their first-quarter levels. Still, the loosening of lockdown restrictions did show that a V-shaped recovery is likely to accompany the lifting of restrictions. 

Another positive factor for the Euro comes from the EU Recovery Fund which, subject to its approval, will be kicking in from 2021. The announcement of this initiative provided a green light for investors in European countries, while the support from the European Central Bank has also encouraged investment within the continent.

Talks about the total stimulus of €750 billion, divided between grants and bonds, led to a surge in the Euro charts, as well as the EUSTX50 index recovering almost 50% from its yearly low. Further Quantitative Easing may contribute to the Euro’s regaining of strength, although The European Council summit of June 19 ended without a concrete agreement regarding the stimulus package. Both the German and the French government are pushing for a quick consensus between the EU-27 countries to kick-start their recovery and a special summit is expected to be held in Brussels on July 17 to further discuss the European Union’s 2021-2027 budget and Covid-19 recovery plans. 

In Conclusion:

Many analysts are taking this good news with a pinch of salt, as chances of a second wave of COVID-19 still pose a threat. In the past week, Spain has already put two towns into lockdown, preventing around 270,000 people from leaving their region following spikes in coronavirus cases. The second wave of Coronavirus infections could understandably spell trouble for the Euro if the crisis persists or worsens. 

While it is impossible to predict the future strength of the Euro, the current increase in market volatility provides many opportunities for CFD Traders to profit from market movements by opening long or short positions on any market of their choice. 

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