- ECB $842 Billion Stimulus Pact
- EU Recession Concerns
- S GDP Data
The EUR/USD pair powered through one-month highs even as the dollar tried to stand its ground amidst escalating U.S-China tension. While the pair did lose some ground in early Wednesday trading session, it remains above one-month highs amidst renewed EUR strength.
The pair was up to highs of $1.1034 in Tuesday trading session after it emerged the European Central Bank is closing in on an $842 billion stimulus package. The proposed package seeks to cushion and support some of the worst-hit economies in the trading block. The proposed stimulus package includes €500 billion in grants as well as €250 billion in loans to EU member states. However, the package requires the backing of 27 member states for approval.
The likelihood of the $842 billion pact passing through still hangs in the balance. One of the tailwinds that could derail a push for the stimulus package is infighting between the EU member states. German constitutional court has already asked the ECB to explain why it needs to push through with the bond-buying program.
Concerns as to whether the stimulus package will go through will continue to weigh in on the EURO sentiments in the forex market. Concerns that the EU economy is slowly sinking into recession is another tailwind that should continue to weigh in on EUR sentiments against the dollar.
The European Central Bank President Christine Lagarde has already warned that there is a high probability of the Eurozone economy shrinking by more than 8% this year in the aftermath of the COVID-19 pandemic. Such a contraction could weigh in on EUR strength.
A strengthening dollar as a safe-haven in response to rising tensions between the U.S and China has also weighed significantly on the EUR/USD pair curtailing upward movements. The U.S warning of a strong response to Beijing’s push to impose a new security law on Hong Kong has triggered a strong demand for safe-haven currencies in the forex market.
Looking ahead, the outcome of the U.S GDP data could have a significant impact on the EUR/USD direction of trade. Should the report worry traders then demand, the greenback could surge, sending the EUR/USD pair lower.