EC President Presents €1.074 Trillion COVID-19 Recovery Package

EC President Presents €1.074 Trillion COVID-19 Recovery Package
July 14, 2020

 

The Australian dollar rallied against the euro dollar in the Asian session on Monday as expectations for a COVID-19 drug improved risk-on sentiment. However, the euro dollar was able to bounce back after the Economy Ministry of Germany, the European powerhouse, stated that the economy is showing firm signs of reversal. The recovery was also aided by the €1.074 trillion Covid-19 recovery package announced by the European Council President Charles Michel. In the past 24 hours, the EUR/AUD pair remained range-bound between 1.6230 and 1.6280.

On Friday, Gilead Science reported that its antiviral drug, Remdesivir, had demonstrated a 62% reduction in the risk of death compared with standard methods of care. The news created a risk-on sentiment in the Forex market, with Aussie, the Antipodean currency, being one of the major beneficiaries. Typically, commodity currencies such as the Canadian dollar, Australian dollar, and New Zealand dollar benefit when risk sentiment improves.

However, Josh Frydenberg, Australia’s Treasurer, warned that the country’s jobless rate is anticipated to increase against the backdrop of economic challenges.

The effective jobless rate is roughly 13.3%, while the prevailing official rate is 7.1%, Frydenberg highlighted.  He further stated: “That is a large number of people reflecting the economic challenges that we see right now.”

In Germany, wholesale prices declined in June, but the rate of decrease eased, according to data published by Destatis. Wholesale prices fell 3.3% y-o-y in June after declining 4.3% in May. It was the 5th successive decline in prices. On a m-o-m basis, wholesale prices rose by 0.6% in June, negating a 0.6% decrease in May. For the first-time, prices increased in February. Data indicated that petroleum product prices slumped by 23.4% m-o-m, while mineral oil product prices increased 8.9%.

The German Economy Ministry revealed that the country’s economy has started rebounding after relaxing COVID-19 control efforts. The ministry also pointed out that the capacities are still used below the optimal level. As per the ministry, industrial production has hit bottom. Production is anticipated to increase in months before a rise in order intake. Nevertheless, sluggish demand from non-European economies continues to be a threat for a further rebound.

Additionally, the government opined that leading indicators rebounded to a certain extent, but a long-term improvement is not anticipated in the months ahead.

In the meanwhile, European Council President Charles Michel presented a strategy for long-term budget and rebuilding of the COVID-19 affected EU members, a week before a conference of the 27 leaders. The amended proposal presented by Michel recommends the size of the long-term budget, referred to as the Multi-annual Financial Framework (MFF), to be €1.074 trillion.

The suggestion was debated for the first time on June 19th and drew significant opposition from certain members. Thereafter, Michel organized a bilateral meeting with all heads of state. Michel clarified that rebates for Germany, Austria, the Netherlands, Denmark, and Sweden would be retained.

He suggested a COVID-19 Recovery package size of €750 billion, with funds to be utilized even for back-to-back loans and spending via MFF schemes.

Michel said, “This is an exceptional and one-off tool for an exceptional situation.”

He also presented a plan for a Brexit reserve of €5 billion to manage the unexpected outcomes of the UK’s departure from the EU in the member states (and industries) which bore the brunt. Pointing the necessity to address climate change, the top EU executive also suggested setting aside 30% of funding for climate-linked ventures.

Regarding expenses, Michel said: “Expenses under the MFF and NextGenerationEU will comply with our objective of climate neutrality by 2050, the EU’s 2030 climate targets, and the Paris Agreement.”

He also pressed for concentration on carbon border adjustment mechanism, plastic waste, and digital tax, which is recommended to be launched by the end of next year.

The COVID-19 related issues in both Australia and Europe is anticipated to keep the EUR/AUD pair range-bound with slight bullish bias in the near-term.

Technically, the currency pair is having solid support at 1.6230. The next resistance is anticipated only near 1.6390. Additionally, the currency pair is also trading above its 50-day moving average, while the stochastics indicator is in the bullish zone. Therefore, a further rally in the EUR/AUD pair is anticipated.

AUD - technical analysis - 14th July 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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