July 20, 2020 / 3:31 AM / 21 days ago

ANALYSTS VIEW-EU impasse caps gains for the euro, but leaves hopes intact

* Euro slips 0.1% to $1.1414

* Modest move suggests expectations have been met - analysts

* Signs of progress can keep euro supported - analysts

SINGAPORE, July 20 (Reuters) - European leaders stood at an impasse and markets on edge on Monday after three days of haggling over a coronavirus rescue plan had yet to produce an agreement.

Diplomats are in a final push on Monday to reach what the chairman of the EU summit described as “mission impossible”.

On Sunday a compromise failed when a deal envisaging 400 billion euros in grants was rejected by thrifty northern states, which said it saw 350 billion euros as the maximum.

In early Asian trade the euro slipped almost 0.3%, but has recovered by mid morning to sit at $1.1414, not far below where it left off on Friday.

Here are analysts’ views on the possible outcomes from here and on how investors may respond:

CHRISTOPHER WONG, FX ANALYST, MAYBANK, SINGAPORE:

“There isn’t an explicit statement to say if there is a deal or no deal.

“Given that they can narrow down their differences to just 50 billion (euros), markets are somewhat still hopeful of a compromise agreement, though the risk of the deal being called off totally remains...which may suggest that euro upside can be limited in the near term

“Another push-back will dampen sentiment and the euro could reverse its earlier gains towards $1.11-$1.12 levels.”

CHRIS WESTON, HEAD OF RESEARCH, PEPPERSTONE, MELBOURNE:

“The failure of euro to really sell off is one indicator of where expectations where. I think expectations were that we weren’t going to get a deal at this meeting anyway, but we needed enough in it to give us a belief that there was one coming in August or September.

“This is what we’re so used to from Europe...it was always going to be a very controversial programme where they needed to be seen defending the interests of the individual sovereigns. Ultimately there will be a deal and the market knows that.

“I think market expectations have been met. If I held a long euro position, which I know most asset managers do, then I wouldn’t be selling on the back of this.”

MICHAEL MCCARTHY, CHIEF STRATEGIST, CMC MARKETS, SYDNEY:

“It’s clearly not a positive, but at the same time because of the history of Europe and some very active expectations management from the participants, I don’t think markets are taking it too hard.

“The euro has come under only modest pressure and I don’t think it was a surprise to the market that no agreement was reached over the weekend. The message has been that this will be a potentially difficult and long conversation.” (Reporting by Tom Westbrook; Editing by Michael Perry)

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