EUR/USD. Political battles in Europe and the "COVID factor"

The Euro-dollar pair continues to trade flat without leaving the frame of the 18th figure. Over the past few days, there has been a positional struggle between the bulls and bears of the EUR / USD pair. For example, yesterday buyers tried to approach the borders of the 19th price level, while today sellers attempted a southern breakout to the 17th figure. But in the end, the price actually remained at the same positions. On the one hand, we are seeing quite high volatility, but on the other hand, these price movements are slow. The pair is caught in the grip of a contradictory fundamental background, so traders do not risk investing in either the dollar or the Euro.

Coronavirus is a common problem for both of the US and European currencies. However, depending on the circumstances, the so-called "COVID factor" affects currency positions in different ways. For example, last month, the Euro was under pressure from the coronavirus factor. In October, Europe was hit by the second wave of the pandemic - almost all countries began to sharply increase the incidence. Against the background of such trends, the key EU countries began to introduce lockdowns one by one. The strictest restrictive measures were introduced in France, the Czech Republic, Greece, and Italy. This cup did not pass through other States of the Alliance because quarantine in one form or another was introduced in all EU countries, including Germany. This fact put strong pressure on the Euro,


However, at the moment, the situation has changed: now the dollar is under the roller of the coronavirus factor, while the Euro is more resistant to the consequences of the pandemic. The fact is that the European quarantine restrictions, which were introduced in early November, began to bear fruit. The total number of new cases in EU countries fell last week for the first time in three months, according to the BOE. While in the US, the situation is the same Since the beginning of this month, the daily rate of increase in the number of infected people does not fall below the 100 thousand mark. And over the past week, this sad indicator has been holding above the 150 thousand mark. The number of deaths is also growing: doctors warn that soon the number of deaths will be about 2 thousand people a day, which is more than at the peak of the first wave of coronavirus happened in the spring of this year. According to experts, the further development of events in the medium term will depend primarily on how the state and each of the States will respond to the development of the pandemic.

But the problem is that state governors have different assessments of risks and different responses to the situation. Some regions have imposed strict lockdowns, while other States ignore the threat. At the national level, there is also a stalemate: the trump administration refuses to repeat the spring scenario and Joe Biden will not have the appropriate authority until his inauguration. As a result, the coronavirus continues to capture the States. The situation is also uncertain with the package of additional assistance to the US economy. Let me remind you that the negotiations between Republicans and Democrats, which lasted for six months (from May to October) ended in failure. And now the parties will again have to sit down at the negotiating table, since the lower house of Congress (the House of representatives) remained under the control of the Democratic party, while the upper house (the Senate) is under the control of the Republican party. As they say, "who is still there."

The European currency is also under the yoke of its problems. The EU budget and the Alliance's economic rescue plan are on the agenda. If we will remember, Hungary and Poland blocked the final approval of the budget, opposing the new EU rules. According to these rules, Brussels can reduce payments to those countries that violate the principles of the rule of law. The corresponding complaints from human rights activists were often addressed to Budapest and Warsaw: Hungarians are criticized for implementing a strict policy against illegal migrants, and poles for judicial reform. In other words, both Hungary and Poland may not receive tens of billions of euros from EU funds. In fact, for this reason, representatives of these countries used their right of veto. Today it became known that the Hungarians were also supported by Slovenian Prime Minister Janez Jansa, who is an ally of Viktor Orban, especially in the issue of countering mass migration. However, he only verbally expressed support, but did not join the blocking.

This fact put a little pressure on the Euro, especially after today's speech by ECB head Christine Lagarde. She expressed concern about the current situation and called on the EU governments to agree "without delay" on the allocation of resources from the anti-crisis Fund. At the same time, she stressed that fiscal stimulus should be a priority at the moment.


However, at the end of the European session yesterday, the pressure on the EUR / USD pair eased. There is a General confidence in the market that Hungary and Poland will unblock the budget process as a result of political negotiations (which Germany has already joined). Also today, it was reported that Brussels can bypass the block and approve the EU rescue plan without the participation of "rebels". According to representatives of France, the EU leadership is currently studying the appropriate mechanisms.

Thus, in my opinion, the priority for the EUR / USD pair remains for long positions. In addition to coronavirus anti-records and political uncertainty, the dollar is losing ground against the background of weak macroeconomic reports. For example, retail sales were disappointed this week and an inflation report was released in the "red zone" last week. The European currency looks more attractive both in the context of coronavirus prospects and in the context of political factors. Therefore, from the current positions, you can consider purchases with the first goal at 1.1920 - this is the upper line of the Bollinger Bands indicator on the daily chart. The main resistance level is at 1.2000, but it is too early to talk about reaching this target.

The material has been provided by InstaForex Company -