France Launches a €100B Recovery Package; EUR/USD Analysis
France has launched a 100 billion euros package to fight against the COVID-19 pandemic economic impact, according to a press release published by the government.
France Relance, which in English is France Relaunch, arrives to fight against a country that is experiencing a significant toll with the COVID-19 pandemic. In the second quarter, France contracted 13.8 percent, and the Banque de France expects that GDP will contract 10.3 percent in 2020 and then rebound by around 7 percent in 2021 and 4 percent in 2022.
The bank also said:
This apparent strong rebound will not allow activity to return to levels observed at the end of 2019 until mid-2022. 2021 and 2022 would therefore be years if clear but gradual recovery.
The package of 100 billion euros accounts for 4 percent of France's Gross Domestic Product, which is the most prominent package to GDP ratio in Europe.
According to the press release, the plan's objective is "to build the France of 2030."
France Relance Explained
The resources allocated by the Government and Europe are substantial and are intended to meet the challenges: 100 billion euros, or ⅓ of the annual budget of the State. 40% were financed by the European Union, funds that can be mobilized by the Member States until 2026 and repayable until 2058.
The plan has three priorities: Ecology, competitiveness, and cohesion. So funds are divided accordingly.
Thirty billion euros "to become the first major European carbon-free economy." The money will be allocated to renovate buildings to be more energy-efficient, transport, agricultural transition, and energy.
Thirty-five billion euros regain competitiveness and growth, including a 20 billion euros reduction in taxes on production. "The crisis has reminded us of the importance of preserving our industrial, scientific and technological know-how."
Thirty-five billion euros for social, territorial cohesion and to boost the "solidarity between generations, between regions, and between companies of all sizes," and to empower youth employment.
Read the official France Relance publication
* Image from Bloomberg.
Prime Minister Jean Castex said on RTL radio:
This recovery plan aims to keep our economy from collapsing and unemployment exploding.
EUR/USD Trades Down For The Third Day
The euro is trading down against the US dollar for the third day in a row. However, following the news that France unveiled a 100 billion euro package to fight against the impact of the COVID-19 in the economy, the EUR/USD found support at 1.1790 and started a shy recovery.
The market is trading with mixed sentiments as the US dollar has shown symptoms of strength, and the 100 billion euros injection into the European economy would push the single currency down. However, a stimulus package will drive the economy higher, so it would accelerate the European recovery.
Currently, the EUR/USD is trading around 1.1830, which is 0.19 percent negative in the day. The unit didn't put itself in the green territory yet, but it looks like the 1.1800 is seen as a reliable short term support.
Remember that the EUR/USD got a rejection at the 1.2000 level, and most investors considered it as an excellent place to sell its positions and wait for the US employment report that will be released Friday at 8:30 am New York time.
According to analysts at Credit Suisse, EUR/USD can fall to 1,1750 as a confirmation of the top at 1.2000.
EUR/USD extends its aggressive rejection of trend resistance from late July at 1.2011 and the spotlight to the lower end of the uptrend channel from late July, currently seen at 1.1786. With key price support from the recent lows seen just below at 1.1764/54, we would look for an attempt to find a floor here at first.
Mauricio is a newer member of the team and a very welcome addition. He is a financial journalist and trader with over ten years of experience in stocks, Forex, commodities, and cryptocurrencies. This experience means he has an excellent understanding of the markets and current events.