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By: Stuart Cowell
The EURUSD closed at a six-day high (1.0928) and above the 20-day moving average for the first time in 9 days, yesterday ahead of the extended Easter holiday weekend. Action from the Fed, helped weaken the Dollar and action, from the EU supported the EUR. Today the pair continues to track higher in extremely thin markets and very low volume to 1.0945. Next resistance is the upper Bollinger band at 1.0955 and R1 at 1.0973 with the Daily pivot point sitting at 1.0906 above the psychological 1.0900. The Daily chart has resistance (50-day moving average and 38.2 Fibonacci level at 1.10970 and then the 200-day moving average and 50.0 Fib level at 1.1070, before the 61.8 Fib at 1.1180. Immediate support sits at 1.0900, the April low at 1.0775 with the March low sitting at 1.0635.
The Fed announced new unprecedented facilities to deal with the coronavirus and the containment policies that have largely shut the US economy. Under these new measures, which include programmes to support state and local governments, as well as small and mid-sized companies, the Fed will provide up to $2.3 tln in additional aid. The Dollar got hit across the board as a result, leaving this a case of USD weakness as opposed to EUR strength. Brave new world.
The EUR also received a lift as European Finance Ministers agree financing of joint virus response. The immediate support measures focus on three pillars.
- First a EUR 100 bln (or around 0.7% of EU GDP) employment re-insurance – SURE – designed to support wage subsidies, for furloughed workers and self-employed. This measure will not just help those temporarily laid off, but also help companies to keep on trained staff through the lockdowns and thus lay the ground for a quick restart of production and work once lockdowns are being lifted.
- The European Investment Bank (EIB) will also provide EUR 200 bln liquidity to support small and medium sized companies, in countries where support is limited. These are loans and costs will only be realised if they are defaulted on.
- The last part of the package – focused on the Eurozone – are EUR 240 bln of credit lines to sovereigns that will be provided by the European Stability Mechanism (ESM). Unlike the original bailout funds, for which the ESM was set up, these will come with very few conditions attached. The only condition is that the funds must be used to cover direct and indirect health , cure and prevention related costs. The ESM is jointly backed by Eurozone governments and offer a sort of “Eurobond-light”. The ESM always offered the best way to jointly fund a direct response, as a new “Coronabond” or “Coronafund”, would have taken a long time to set up and faced additional legal hurdles at national level. The use of the ESM also paves the way for the ECB to use the OMT program – if necessary – to support the funding.
All these measures cover the initial response to the challenges of locked down economies and the European Commission will be setting up investment programs financed through the multi annual budget to support the recovery once lockdowns have ended, in addition to measures already agreed.
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