EUR/USD: Three scenarios for the EU summit and its implications

EU leaders are holding a video conference on Thursday to mitigate the coronavirus crisis. EUR/USD will likely move on any decision that may be fateful to the project, according to FXStreet’s analyst Yohay Elam.

Key quotes

“Another euro-fudge: Merkel may opt for backing a broader EU fund, perhaps something between €750 billion to €1 trillion. EUR/USD may initially rise in response to optimism, but decline, as it markets, would see that as insufficient and send it down. This scenario has a high probability.”

“No agreement: The wide divide means that such a case has medium probability despite the dire times requiring cooperation. EUR/USD would have substantial room to the downside. If time passes by and further summits end in failure, the path to EUR/USD parity is open.”

“Coronabonds or a massive bazooka: If EU leaders grasp the opportunity and go for closer integration via mutualizing debt, the union would strengthen and the euro would surge. Even just adopting the Spanish plan of €1.5 trillion would be sufficient. This scenario of a leap in the euro has low probability given the recent rhetoric.”