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REFILE-FOREX-Euro down from four-month high; hopes for EU fund remain

07/20/2020 | 07:16am EST
FILE PHOTO: Rolled Euro banknotes are placed on U.S. Dollar banknotes

(Adds the missing word "fact" in paragraph 9 and removes double quotation marks in paragraph 8)

* After reaching 19-week high, euro gives back some gains

* Analysts debate whether euro can advance towards $1.15

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

LONDON, July 20 (Reuters) - The euro retreated from the 19-week high of $1.1467 it reached on Monday amid hopes the European Union would agree on a recovery fund to help revive EU economies hit by the COVID-19 pandemic

EU leaders have made progress in Brussels after three days of talks, but they remain at odds over how to carve up the proposed 750 billion-euro ($859 billion) recovery fund .

The fund's backers initially proposed 500 billion euros of grants and 250 million of loans. Some countries objected to that much in grants. They saw 350 billion euros as the maximum, but showed signs of compromising.

Analysts said the smaller the amount of grants, the more the euro would fall.

The next level to watch for the euro is $1.1495, which would take the currency to a year-and-a-half high. It was last up 0.3% at $1.1456.

Jane Foley, senior currency strategist at Rabobank, said the fact the currency could not stabilise above $1.1460 signalled more was needed to push it higher.

"There is some good news already in the price. But it does look like it is struggling this morning to hold above that $1.1460 level ... as there is a little bit of 'selling the fact'," Foley said.

"But I would argue that the fundamentals for the euro have improved since around about May," she said. "We may still need another couple of positive headlines to take us to the next step."

The EU summit was originally due to last two days. The fact that it's continuing into a fourth day of negotiations is evidence that EU leaders are ready to do everything it takes to maintain unity in the euro zone, Foley said.

If the 27 countries in the European Union agree on a recovery fund, said Mike Bell, global market strategist at J.P. Morgan Asset Management, that should inject confidence in the euro, no matter the numbers in the deal.

"What has been established is are the EU in times of need willing to pull together and display unity in order to help out the hardest-hit economies. And so the exact number is less relevant than getting a deal done," Bell said.

BNP Paribas had two trades set in to express their positive view on the euro -- long euro/dollar via options with a strike of $1.16 and a long euro/Swiss franc, said Parisha Saimbi, G10 FX strategist at BNP Paribas. "Within the next couple of weeks, seeing $1.16 wouldn't be completely out of the woods.

"On a day like today perhaps we could test $1.15 if we do get a deal announced today ... perhaps we can see an initial 30-, 40-, 50-pip pare back to take profit, but I think the trend should still be there for us to get up to $1.16," she said.

"It's still right to believe that the market hasn't fully priced in a deal outcome," Saimbi said, noting that according to BNP's positioning index, money managers were long the euro, albeit still half-way before seeing positions becoming over-stretched.

Elsewhere, the U.S. dollar index was flat at 95.83, with its advance kept in check by investors' strong risk appetite amid expectations of more stimulus from Europe and from the United States. ($1 = 0.8731 euros)

(Reporting by Olga Cotaga; editing by Jane Merriman, Angus MacSwan, Larry King)

© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
BNP PARIBAS 1.69% 44.95 Real-time Quote.-16.33%
EURO / US DOLLAR (EUR/USD) 0.36% 1.21134 Delayed Quote.7.65%
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