27.05.202021:23 Forex Analysis & Reviews: EUR/USD. European Commission anti-crisis program: "optimism pill" did not last long

The bulls of the EUR/USD pair attempted to storm the 10th price level again today. It failed again. Buyers tried to test the 1.1000 mark several times throughout May - but the pair attracted sellers each time, after which the price returned to their previous positions.

So, today they presented the anti-crisis program in Brussels, which has a rather ambitious name: "The EU of the next generation." Within the walls of the European Parliament, the head of the European Commission Ursula von der Leyen spoke out explaining all the details of the proposed plan. Her speech can be divided into two parts: the first part is positive for the euro, the second - vice versa.

Let's start with the good points. Firstly, the proposed program is worth 750 billion euros. After this figure was voiced, the euro jumped in the entire market, since Brussels offered to spend one and a half times more on economic recovery than Merkel and Macron had proposed before.

They decided to distribute the money as follows. The largest part (about 70-80%) will be directed to direct support of the EU countries. At the same time, members of the EU will independently prepare scenarios for the restoration of their economy. This scenario will need to be agreed with Brussels, after which a certain amount will be allocated from the 750-billion pot. A certain priority will be given to the most economically backward countries of the EU. The second direction is direct assistance through investing, as well as using an instrument to support the financial stability of enterprises. And the third direction is "safety". Brussels decided to draw a lesson from the situation and direct additional funds to research and health programs.

Actually, this is the end of the list of the unconditionally positive points of the program. The following are quite controversial aspects, to which Europe has a very mixed attitude. For example, the central question of the program is the dilemma: how to provide assistance? As we recall, the EU countries most affected by the pandemic (representatives of the south of Europe - Italy, Spain, France) advocate for the provision of grants and subsidies. Representatives of the north, who pay significantly more to the general budget of the EU than they get from there, expectedly opposed this option, saying that credit relations were appropriate (among these countries, Austria and the Netherlands play a central role).

The European Commission tried to make a "Solomon decision": the proposed plan provides that 500 billion euros will be provided with grants, and accordingly 250 billion with loans. Money offers to borrow in the financial markets. Loans will be returned by the countries that took them, but the situation with grants is somewhat more complicated. Naturally, they will also be returned - not individual countries, but the EU as a whole. To do this, they plan to increase the contributions of the member countries, reduce some expenses, and use the EU's own resources (including through customs duties and VAT). It is likely that tax policy will be changed. Brussels proposes at first to pay interest on the funds involved - in the period from 2021 to 2027, and then, for 30 (!) years to give back the "body" of loans taken by the European Commission. That is, if this plan is approved, Europe will remember the coronavirus crisis in a" kindly quiet word " as far back as 2058.

But so far the question is somewhat different: will members of the EU approve the proposed anti-crisis program? According to the procedure, this plan should be considered by all member states of the European Union and express their opinion at the upcoming summit. According to preliminary information, such a summit could be held in late July. But even if the program is approved in principle, another procedural step is needed for its implementation: it is necessary to increase the "ceiling" (that is, the upper limit) of the EU's own resources. And for this, ratification of the national legislative bodies of the EU countries is needed. In other words, the proposed program should go through the millstone of the parliaments of all 27 member states. According to some estimates, the "Ursula Plan" will begin to work fully from the beginning of next year - and this provided that Austria, Sweden or the Netherlands do not block it at the approval stage. However, the head of the European Commission noted that in any case this year about 12 billion euros will be allocated for restoring the EU economy - in order to allocate this amount, only the consent of the European Parliament is necessary.

Thus, today's news from Brussels is controversial. On the one hand, traders were pleasantly surprised by the scale of the proposed program - no one expected that the plans of the European Commission would be one and a half times higher than German-French intentions. The EUR/USD support was also provided by the program details - in particular, the combination of credit lines with subsidized assistance. On the other hand, market participants seem to be disappointed with the complexity of the further procedure. The anti-crisis program can get bogged down in political battles within states, especially against the background of an increase in euro-skeptic sentiments. Therefore, the pair could not gain a foothold within the 10th figure, retreating to the level of today's opening.

Further comments by key EU political players and representatives of EU countries (especially from the "opposition") will determine the EUR/USD movement vector. The events in China and the US will also be in the spotlight: the Chinese parliament must adopt a resonant law on national security in Hong Kong today and tomorrow, and appropriate measures must be announced in Washington. Therefore, we can assume that the pair will follow the downward pullback, which is limited by the support level of 1.0880 - at this price point, the lower border of the Kumo cloud on the daily chart coincides with the middle line of the Bollinger Bands indicator and the Kijun-sen line). In any case, long positions now look risky, especially after an unsuccessful assault on the 10th figure. Purchases can be considered after consolidating above the resistance level of 1.1010 (the upper line of the Bollinger Bands indicator). In this case, the price is expected to rise to the upper border of the Kumo cloud at D1, that is, to around 1.1070.