July 17, 2020 / 8:12 AM / a month ago

FOREX-Euro in 'wait and see' mode ahead of crucial EU summit

(Adds quotes, background on summit)

* Graphic: World FX rates in 2020 tmsnrt.rs/2RBWI5E

* No end in sight to U.S. virus surge

* Dollar supported on safe-haven flows

By Julien Ponthus

LONDON, July 17 (Reuters) - The euro was flat against the dollar on Friday before a European Union summit that will try to reach agreement on a 750 billion- euro recovery fund.

No outcome is expected at the summit until evening, at best, but either an agreement or a collapse in the talks will have a major impact on the currency when trading resumes.

The euro, which retreated from four-month highs reached earlier this week, held steady at $1.1389. It was higher against the British pound at 90.72 pence.

“A positive outcome should see the single currency retest the week’s highs at $1.1450”, wrote Jeffrey Halley, an analyst at Oanda, noting an unfavourable outcome might send the euro as as low as $1.13.

Implications for the euro should the EU go ahead with its plan would also be long-lasting, Marshall Gittler, head of investment research at BDSwiss, told his clients.

A deal “would make the euro more attractive as a reserve currency” by “establishing a central fiscal capacity that can respond to adverse shocks, which would make monetary union more stable”, he said.

Many traders expect that the summit will reach no agreement and EU leaders will need to meet again to find a compromise.

For the week, the dollar was on course for gains against the yen, sterling, and the Swiss franc. The yuan fell by the most in three weeks, undone by a steady increase in diplomatic frictions between the United States and China.

Some investors say they are beginning to see signs that a surge in coronavirus infections is threatening the U.S. economy. Others point to deteriorating U.S.-China ties as a reason to avoid riskier trades, which should keep the dollar in demand for now.

The dollar stood at 107.13 yen and sterling was little changed at $1.2541. The dollar was quoted at 0.9451 Swiss franc, close to its highest since July 3.

Another jump in coronavirus infections has forced California and other U.S. states to at least partly shut down again. In addition, President Donald Trump’s administration is considering banning travel to the United States by all members of the Chinese Communist Party.

The yuan fell by the most since June 24 to 6.9982 to the dollar. (Reporting by Julien Ponthus, editing by Larry King)

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