EUR/USD: Frugal Four opposition to Merkel-Macron deal to limit upside potential – Westpac

EUR may gain from the initial rush of enthusiasm over the Macron/Merkel Recovery Plan and easing of lockdown restrictions, but upside is likely to be limited, according to analysts at Westpac.

Key quotes

“The recent Macron/Merkel proposals for a shared responsibility COVID-19 Recovery Fund for the region has heralded talk of the EU’s Hamiltonian moment, which brings forth genuine fiscal union, but the realities of EU politics mean that this is far from a secured deal.”

“Germany’s legal rulings against ECB and ECJ as well as potential for the Frugal Four to lead opposition against a Recovery Fund may not be key issues at present, but they will return and dampen current EUR rebounds.”

“Markets are currently focusing upon marked improvements in sentiment and so EUR/USD may breach its recent 1.07-1.10 range for a push to 1.12.”