20.05.202013:43 Forex Analysis & Reviews: EUR / USD: Eurozone's economic fiscal stimulus still in discussion

The euro rose sharply against the greenback on signs of fiscal solidarity in the EU, but could not stay at its local maximums near $ 1.0970.

Different approaches of the Federal Reserve and the White House to the restoration of the American economy, as well as criticism of the plan of France and Germany to save the EU's most affected by the coronavirus from a number of members of the alliance, cooled the offensive impulse of the buyers of EUR / USD.

During their speech in the Banking Committee of the Senate of Congress, the head of the US Treasury and the Fed chairman expressed conflicting views on the economic prospects of the United States. According to Stephen Mnuchin, the third quarter will be very good, and national GDP may well go along the path of a V-shaped recovery. Jerome Powell, in turn, said that the fear of coronavirus infection would restrain economic activity in the country, so the path to returning GDP to pre-crisis levels might be long.

However, the different views of the Federal Reserve and the American administration are far from news. The Central Bank has repeatedly said about the need for additional fiscal stimulus, which the Democrats are willing to provide in the amount of $ 3 trillion, but White House head, Donald Trump, has so far rejected their offer. In his opinion, the provision of additional support to the unemployed will hinder their search for new jobs and will delay the process of restoring national GDP.

"There will be more political demonstrations in the US before the November 3 presidential election, the stronger the direct pandemic threat recedes. The parties will shift blame on each other both in the consequences of quarantine and in improper regulation. The economy, meanwhile, continues to suffer, and Congress can be expected to have less agreement on new measures, even if the Fed is doing everything possible to provide support within its powers, and beyond them, "said John Hardy, Saxo's chief currency strategist Bank

Disagreements between Democrats and Republicans in the United States over the timing and extent of the fiscal stimulus are expected to support the greenback.

It would seem that clouds are beginning to disperse over the euro thanks to the agreement reached between France and Germany on the creation of a pan-European fund of € 500 billion. However, their plan was criticized by Northern Europe. The Netherlands, Sweden, and Denmark do not like the European Commission to go into debt, sending non-repayable financial assistance to countries that already have large public debt. Austrian Chancellor Sebastian Kurtz made similar criticism.

"We are skeptical of the plan of Germany and France. We have a clear position. We want to demonstrate solidarity with countries that have been particularly hit so hard by the crisis, but believe that the right way is loans, not subsidies. In the coming days we will present a proposal with our own ideas. We believe that it is possible to stimulate the European economy and at the same time avoid generalizing debts, "he said.

Apparently, the negotiations may drag on for several weeks, although Euro fans seem to still hope that Germany and France will win this fight.

The EUR / USD pair rebounded from the upper border of the eight-week range, and the barrier in the 1.0975 area is now a key turning level for traders. Its breakdown will allow the "bulls" to break through the important 200-day moving average in the 1.1015 area and aim at the 1.1100 round mark.

Meanwhile, a clear breakdown of the level of 1.0900 may accelerate the decline in the direction of 1.0845, from where the bears will open the way to 1.0800 and 1.0775.