Positive news for the Euro as after many days of negotiations EU leaders finally agree to 390 bn Euro of grants alongside loans of 360 bn Euro. Whilst EURUSD has gained to the high end of its recent range, the Euro has not outperformed other currencies than the dollar.
I don’t think this level of wealth transfer should be understated. It is a major step toward the underwriting of the Euro currency by the bloc of nations. This no doubt would not have been achieved without the severity of circumstance caused by the coronavirus. It is such significant events which often lead to permanent change.
I believe we will continue to see Euro nations coming together now this first step has been taken.
There remains a significant amount of money placed on short Euro on the expectation the Euro would and will not survive the next economic downturn. Those bets may be unwound over the coming months if Euro countries continue to show solidarity. The ECB has the ability to fund any debt issuance required to meet the fiscal needs of member states and any EU project dreamt up as a necessity. The recent German court ruling which found in favour of the ECB is another hurdle overcome toward a united nation of states.
SKI switched positions from short to long at the beginning of June on just this thesis emerging. EU leaders have a choice, fall in line and stand behind their stated allegiance to the Euro or see it implode as weaker states are forced to stand alone under significant economic pressure brought about by the virus.
After this week’s meeting, SKI’s long position will continue.