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EUR/USD Moves to the Upside to Reach Near a 3-month High

Euro bulls keep optimistic about the recovery of the European economy as EUR/USD trades near a 3-month high in Thursday’s session. Read on to see what is happening in the market.

SageFX - Nov, 26, 20

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Principal Points

  • Economic challenges loom on the horizon for Europe
  • A ray of light shines across the European continent as vaccines are secured

The EUR/USD pair traded near a 3-month high in Thursday’s session as the price climbed to 1.1940 at its peak earlier today. Currently, the exchange rate is off the highs gravitating towards 1.1910. The last time the EUR/USD eclipsed the 1.1940 level was on Sep 1 when the price reached a high of 1.2011. Since then, the pair has been trading below 1.1940.

The EUR/USD pairing has been moving strongly to the upside for November, gaining close to 3% from the low of 1.1602 to today’s high of 1.2011. However, from a distance, the pair is still in consolidation in the range between 1.1600 and 1.2000, a comfort zone for the two currencies since the end of July.

Euro bulls keep optimistic about the recovery of the European economy as the market is heading to the last month of 2020 and into Q1 2021, which according to the European Central Bank President Christine Lagarde, will be very challenging and difficult. Market participants put significant importance on the development of the ECB fiscal stimulus intended to buoy the European economy in the near future. The EU’s 1.8 trillion-euro ($2 trillion) spending package continues to be held up by Hungary and Poland. Indeed, the two countries have placed a veto on the deal over conditions attached to the financial aid. According to ECB President Christine Lagarde, the package must become operational without delay, otherwise, the EU economy is likely to suffer a double-dip recession

A Difficult Economic Outlook For Europe

Meanwhile, European Central Bank policymaker Olli Rehn condemned the political fight as “irresponsible”. Mr. Rehn urged for the successful combination of monetary and fiscal stimulus for the EU to alleviate the negative long-term effects on the European economy. The ECB will discuss further action in the upcoming Governing Council meeting on Dec 10. It is expected that around 500 billion euros will be added to bond purchases while the central bank maintains its policy on long-term cheap loans. The rate cut, however, is not on the agenda due to the negative effect on bank profitability.

President Lagarde said last week that a successful Covid-19 vaccine is not a game-changer for the economic outlook. Concerns, according to ECB officials, remain in relation to accumulated government and corporate debt and the damage done to companies and jobs. In this light, ECB President Lagarde urged the EU countries to step up and work together on the agreement over fiscal aid. For the 1.8 trillion-euro to be approved, all parties must unanimously confirm it, which means that if Hungary and Poland decide to oppose it, the ECB will be left with a heavier burden and more responsibility at a time when its resources are depleting.

With most of Europe under some form of lockdowns, the restrictions appear to be effective as confirmed cases are trending off their peaks and weekly averages while hopes arise for easing of measures during the festive season. France and the UK are planning to ease the lockdowns based on falling infection rates, while Ursula von der Leyen, President of the European Commission warned against relaxing measures too quickly. The EU has reasons to be optimistic, though, as the EC has secured vaccines that could be administered as early as the end of December.

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