BUZZ-COMMENT-Expect euro volatility as crunch EU talks approach

Credit: REUTERS/Phil Noble

July 16 (Reuters) - The euro is holding up early Thursday but could face significant volatility heading into a pivotal European Union summit, where the outcome is uncertain despite market expectations of agreement on a huge pandemic rescue fund.

The European Central Bank is widely expected to keep policy on hold Thursday, as the impact of recent measures unfolds and the pace of the economic recovery remains uncertain. ECB President Christine Lagarde's press conference will be key , but is unlikely to surprise.

The EU meeting on Friday-Saturday could, however, have a significant euro impact. The well documented differences on the scale and composition of the stimulus package, between the 'Frugal Four' and the Mediterranean members, France, and Germany, have produced an uncertain lead-up to the meeting .

Euro strength suggests investors hope for a compromise close to Germany and France's proposal of a 750-billion euro fund, with 500 billion euros to be delivered as grants and guarantees, and 250 billion in loans. A deal close to this plan could see a knee-jerk EUR/USD test of the 1.1495 2020 high from March.

No deal, or a perceived victory for the 'Frugal Four', would undermine investor faith in the future of the EU, opening the way for a EUR/USD move towards the July low around 1.1200.

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eur jul 16https://tmsnrt.rs/30dSmr0

(Andrew Spencer is a Reuters market analyst. The views expressed are his own)

((Andrew.m.spencer@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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