ForEx

EU Deal Done; Risk Rallies

Market Drivers July 21, 2020

  • EU officials come to terms on the fiscal deal
  • US equity indices higher
  • Nikkei 0.73% Dax 1.88%
  • UST 10Y 0.61
  • Oil $41
  • Gold $1823/oz
  • BTCUSD $9349

Asia and the EU

  • No Data

North America 

  • CAD Retail Sales 8:30

After four days of negotiations, EU leaders reached a far-ranging deal on the COVID stimulus package that is almost evenly divided between grants and loans. The news helped to lift risk sentiment with equity indices trading higher by nearly 1% in morning European dealing.

The EU deal will provide 750B EUR of the stimulus with 390B of that in grants and 360B in loans creating a wealth transfer mechanism for EU members hit hardest by the pandemic. The size and scope of the deal are historic and open the way for greater federalism within the union which could make Europe a more integrated market and stronger economic competitor on the global stage.

At the very minimum, the fiscal package is catch up with nearly 2 Trillion dollars of stimulus that the US has already provided and should offer a further boost to global demand.

The markets took the news positively, although it was expected so the reaction was contained in equities while FX barely budged with EURUSD hovering around the 1.1440 level. Barring any sabotage in the EU Parliament which holds vast budgetary authority, the EU package should provide support for European assets as the continent returns back to normal economic activity. With the pandemic under much better control in EU than in the US, Europe may even enjoy a competitive advantage for the time being as its industrial and service base could resume work supported by stimulus money, while the US continues to fight the virus in key economic states like Texas California and Florida.

The eco calendar today is barren with only Canadian Retail Sales on tap. Better risk flows have helped the loonie rally over the past 48 hours with USDCAD breaking below the 1.3500 level and if risk appetite can hold the pair could move towards 1.3450 as the day proceeds. As to the rest of the markets, the tone remains constructive with investors essentially convinced that despite the rising count of COVID cases the risk from the virus has peaked as deaths remain under control, and the market continues to anticipate a further revival of economic activity.

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

Boris Schlossberg

Mr. Schlossberg is a regular contributor to CNBC's Squawk Box and a commentator for CNBC Asia and CNBC Europe. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Mr. Schlossberg has written for SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is the author of Technical Analysis of the Currency Market and Millionaire Traders: How Everyday People Beat Wall Street at its Own Game, both of which are published by Wiley

Read Boris's Bio