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Recent Rebound In EUR/CHF To Stall Moving Ahead

Jun. 04, 2020 2:27 PM ETFXE, FXF
Hao Huang profile picture
Hao Huang


  • A long and bumpy road ahead for approval of EU recovery fund.
  • Headwinds are still lingering which could support safe haven demand.
  • The next US treasury report may limit further FX intervention.

Last week, we have witnessed EUR outperform against most of its G10 peers which could be attributed to month end flow dynamics, weaker US Dollar as well as the optimism arising from the European Union (EU) Commission's EUR750 billion recovery fund which aims to help the bloc to recover from the coronavirus crisis. This article aims to discuss why the recent rally might be short lived and should instead fade any EUR rallies moving forward.

A long and bumpy road ahead for approval of EU recovery fund

In terms of the latest development regarding the EU recovery fund, according to the European Commission (EC) the recovery plan will be rolled out under three main pillars. Firstly, it would be supporting member states to recover and the main bulk of the funding, more than 80%, will be used to support public investment and key structural reforms concentrated on where the crisis impact and resilience needs are the largest. Secondly, it will be focusing on mobilizing private investments in key sectors and technologies which would be pivotal to the success of Europe's green and digital transactions. Lastly, the plan would also reinforce programs for research, innovation and external action and supporting key programs for future crises. While the proposal might be viewed favorably by EUR bulls, it is still too early as the process of getting approvals and forming an unanimous agreement among the countries might be an uphill task, especially regarding financing and allocation issues among countries. The European Commission did consider the current difficult financial and budgetary situation of many member states and funding to be raised through loans, many of which have long-term maturities and will be paid back through new resources such as the Emissions Trading System, carbon and digital taxes. However, taxation is something that requires unanimity and should no agreement on taxes is to be found, the method of financing might possibly revert back to

This article was written by

Hao Huang profile picture
My core interests reside in the financial markets spanning across G10 and Asia/EM Foreign Exchange (FX), Soft & Hard Commodities (Precious Metals) and Global Macro.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a short position in EURCHF over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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