20.07.202010:49 Forex Analysis & Reviews: EUR/USD. Rumors from Bloomberg helped the euro, but the intrigue around the summit persists

Contrary to the expectations of many traders, the EUR/USD pair did not collapse at the start of trading due to the failed negotiations of the European leaders. During the Asian session on Monday, market participants behaved extremely cautiously: the pair opened almost at the level of Friday's close and throughout the session traded within a narrow price range. However, the price rose at the beginning of the European session, renewing the 4-month high. The last time buyers of EUR/USD were at such heights in early March, when the coronavirus factor was still playing against the US currency.

The reason for the upward impulse was information from the Bloomberg agency. According to them, the representatives of the European Union in the course of behind-the-scenes negotiations approached a compromise decision regarding the creation of a fund for economic recovery in the eurozone. Anonymous sources of journalists claim that representatives of most EU countries agreed to change the structure of this fund, or rather the ratio of loans to grants. In turn, representatives of the countries of the "mean four" (the Netherlands, Austria, Denmark and Sweden) allegedly agreed to support the initiative, which will be announced tonight (the fourth round of negotiations will begin at 14:00 Universal time). According to preliminary information, the parties agreed to keep the total volume of the fund at the level of 750 billion euros, but to distribute the ratio of grants and loans according to the formula "390 to 360" at the same time. Let me remind you that the original plan of the European Commission was to allocate 500 billion euros in grants and only 250 billion in loans.

The July EU summit was supposed to end on Saturday, but it has already been extended twice. The parties could not agree on an additional (Sunday) day, so they decided to continue the dialogue today. The current negotiations are second only to the five-day summit in Nice in 2000. On the one hand, such a complex negotiation process has once again exposed the conflict between the "North" and "South" of Europe, between richer and lagging countries. On the other hand, the participants in the meeting are surprisingly persistent in trying to find a common denominator although many experts still assumed that the main battle on key issues would take place in August, while the July summit would end without result.

However, everything is exactly like this at the moment: there is no result, and many compromise proposals were rejected - either by representatives of the majority, or by the "opposition." The long-running conflict between the "north" and "south" of Europe, which has been going on since spring (when Italians and Spaniards insisted on the introduction of the so-called "coronabond"), showed itself again, as they say, "in all its glory." Germany is now only on the side of the southern countries of the European Union. But the problem is that the implementation of this plan requires the consent of absolutely all EU member states, while at least four states still do not agree with the proposed conditions. Initially, Charles Michel proposed maintaining the ratio of grants and loans in the ratio of 500/250. But at the same time, he voiced a compromise solution: to those countries who pay more to the general budget of the European Union than they receive from it, part of their contributions will be returned. We are talking about the above four countries + Germany. But the "oppositionists" rejected this idea. After that, the head of the European Council proposed to reduce the share of grants to 400 billion euros, but this initiative did not find support. Now, according to rumors, the ratio has changed - "390 to 360."

It should be emphasized here that the information published today by Bloomberg is anonymous and unconfirmed, so it is still risky to open long positions in the pair, although the bulls of EUR/USD are now clearly dominating the pair. Nevertheless, you should wait with purchases in order not to play the "lottery" - such rumors are often not confirmed later.

Another obstacle to reaching a consensus is the position of Hungary and Poland, which do not agree to link payments to compliance with the standards of the rule of law. In particular, the parliament in Budapest forbade the government to sign in Brussels under any conditions related to the rule of law. Hungarian Prime Minister, Viktor Orban, entered into a verbal battle with a colleague from the Netherlands, who initiated a new EU money freeze mechanism for countries that violate respect for common rules and norms, freedom of the media and independence of justice. It is still in question whether the "battle" continues in this vein today or whether the Dutch initiative is postponed until August.

As you can see, the market reacts quite sharply to any news regarding the possible result of the July summit. And if the rumors during the day are refuted by the meeting participants in the evening, the EUR/USD pair will collapse at least to the support level of 1.1290 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart). If the parties still agree on a common position, then the pair will easily overcome the resistance level of 1.1510 (the upper line of the Bollinger Bands on the same timeframe), thereby conquering the 15th figure.