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21 Jul 2020

EUR/USD pops and drops as EU reaches fiscal deal

  • EUR/USD sees a minor pop on the EU fiscal deal. 
  • Sell the fact trade looks unlikely as the bar of expectations was set low. 
  • Dollar sell-off seems to have fueled EUR/USD's month-to-date gains.

EUR/USD jumped to fresh multi-month highs on Tuesday after Reuters reported that the European Union has reached a highly-anticipated deal on the EUR 750 billion coronavirus recovery fund. 

The already bid currency pair added 11 pips in the five minutes to 03:25 GMT to print a 4-1/2-month high of 1.1470. The minor pop, however, was quickly erased and the pair fell back into the red near 1.1440.

Sell the fact?

EUR/USD rallied more than 250 pips, leading up to the fiscal deal. As such, one may argue that the deal was priced in advance and may anticipate a "sell-the-fact" pullback in the common currency. As noted earlier, the pair has already pulled back from session highs. 

However, the bar of expectations was set low due to European leaders' repeated failure to iron out differences over the size and scope of the coronavirus recovery fund. Further, the dollar took a beating across the board over the past couple of weeks. The dollar index, which tracks the value of the greenback against majors, is down 1.7% this month. 

Hence, there is a risk in concluding that the deal was already baked in. The sell-the-fact trade may remain elusive or could be very brief. In fact, with the EU reaching the highly-anticipated fiscal deal, markets may be more inclined to sell haven currencies like the US dollar. 

Technical levels

 

Jul 21, 2020

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Jul 21, 2020

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