EUR/USD Rate in 0.75% Bounce on Merkel Immigration Win at EU Summit
Image © European Union
The Euro-to-Dollar exchange recorded an impressive +0.75 jump in early London trade Friday on news that German Chancellor Angela Merkel's quest for a new EU-wide settlement on asylum and immigration has been successful.
Following a gruelling all-night session aimed at reaching agreement, European leaders finally had something to offer on the morning of Friday, June 29.
The sharp bounce in the Euro is indicative of how important the deal really is:
Hideyuki Sano who sits on the Thomson Reuters Asia currency desk says that a deal on migration struck by the EU following marathon talks overnight is behind the fresh jump in the Euro. "The Euro jumped more than a half cent on Friday after European Union leaders reached an agreement on migration, a thorny issue that has threatened EU unity and the fate of German Chancellor Angela Merkel," says Sano.
We warned earlier in the week that the Euro would be in trouble should no deal be struck as it was increasingly clear the fate of Europe's longest-serving leader Angela Merkel was tied to such a deal and the recovery in the currency tends to reinforce the view that there was some political risk premium weighing on the single-currency.
Merkel needed to reach an agreement concerning the arrivals of asylum seekers at the German border to ensure the continued support of her CSU partners in the German coalition government.
According to the conclusions of the June 28 session, EU countries could now set up new migrant centres on a "voluntary" basis. These centres would process migrants to determine which are genuine refugees and which are "irregular migrants, who will be returned", the text of their agreement says.
However, it was unclear which countries would volunteer to host the centres, importantly eastern bloc EU nations such as Hungary and Poland won't be forced to take in migrants. The joint communique also speaks of restricting the movement of asylum seekers between EU states - the key win for Merkel.
"The agreement takes a lot of the pressure off not just the EU as a whole but specifically off German Chancellor Merkel, who was under intense pressure from her interior minister to do something to stem migration. The agreement probably means no further worries about her coalition falling apart. It’s therefore positive for the Euro," says Marshall Gittler, an analyst with ACLS Global.
The EUR/USD exchange rate was an eye-watering 0.77% higher at 1.1651 on the news, and the Euro is easily the best-performing major currency today:
The bounce in EUR/USD reinforces the view that the pair might have just formed a floor that should provide technical support going forward.
Analyst Shaun Osborne at Scotiabank holds a neutral to bullish stance on the pair, observing technical levels in the 1.15s represent good support for the Euro against the Dollar.
"Our bullish assessment hinges on support at 1.1500/10, where the EUR has bounce from three time now since late May, holding up. Recall last week’s reversal formed a bullish key reversal day, suggesting that the recent weak phase in the EUR had ended. Gains through 1.1720 are needed to solidify better technical prospects," says Osborne.
Advertisement
Get up to 5% more foreign exchange by using a specialist provider to get closer to the real market rate and avoid the gaping spreads charged by your bank when providing currency. Learn more here.
