EUR/USD trading higher

[Bogdanovicc]

What’s the latest on EUR/USD? Any particular reason why the pair surged higher recently?

 

[David Miller]

Hi Bogdanovic, thanks for the question. 

EUR/USD is extending the rally a sixth consecutive day, gaining as much as 300 pips.

The European Central Bank scheduled a meeting for Thursday and several financial institutions have announced their analysis of the upcoming meeting. The ING group anticipated that the ECB will boost its  Pandemic Emergency Purchase Programme (PEPP) incentive package this week. 

“Combined, they imply a slower pace of purchases than what has been implemented so far: from the current run rate of roughly €105 billion per month that can continue until October, to €56 billion if the additional envelope is spent evenly until June 2021,” the Dutch banking corporation said in a note.

ING believes the PEPP will receive a boost of 500 billion EUR by the middle of 2021, as the ECB attempts to help its member countries recover from the post-pandemic crisis.

Apart from the ING group, analysts from the investment management services company Principal Global Investors have a similar opinion and expect the PEPP boost.

“We are anticipating an increase in asset purchases. It will be important to see if there’s any acknowledgement of the ruling from the GCC and how it impacts the ECB going forward,” she added, referring to the German constitutional court ruling in May that the ECB had overstepped its mandate,” said Seema Shah, chief strategy officer at the London-based company.

EUR/USD has rallied back to the resistance area of around 1.1200, for the first time since March and the investors are taking advantage of the weaker USD. We may see a pullback from these levels given that this is an area of strong resistance.

The pair has been supported by the recent news that the European Commission proposed a recovery package to help the EU economy recover, as well as Euro’s strong position in the current region account. 

“We turn strategically bullish on EUR/USD following the EU debt recovery fund proposal,” Morgan Stanley analysts said.