FOREX-Euro hits 4-month high as hopes for EU recovery fund deal rise

* EU leaders go into fourth day of EU negotiations
* Frugal northern states seek less in grants from recovery
fund
* Analysts mixed on whether euro can advance towards $1.15
* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

(Updates headline and prices)
By Olga Cotaga
LONDON, July 20 (Reuters) - The euro hit a 19-week high of
$1.1467 on Monday, underpinned by hopes the European Union would
agree on a 750 billion euro ($857.93 billion) recovery fund to
help revive EU economies hit by the COVID-19 pandemic, of which
390 billion euros could be offered as grants.
EU leaders have made progress in Brussels after three days
of talks, but they remain at odds over the composition of the
recovery fund. The fund's backers initially proposed 500 billion
euros of grants and 250 billion of loans. Some countries
objected to that much in grants. They saw 350 billion euros as
the maximum, but showed signs of compromising. The next level to watch for the euro is $1.1495, which would
take the currency to a year-and-a-half high. It was last up 0.2%
at $1.1450 EUR=EBS .
Analysts said the smaller the amount of grants, the more the
euro would fall.
Jane Foley, senior currency strategist at Rabobank, said the
fact the currency could not stabilise above $1.1460 suggested
more was needed to push it higher.
"There is some good news already in the price. But it does
look like it is struggling this morning to hold above that
$1.1460 level ... as there is a little bit of 'selling the
fact'," Foley said.
"But I would argue that the fundamentals for the euro have
improved since around about May," she said. "We may still need
another couple of positive headlines to take us to the next
step."
The EU summit was originally due to last two days. The fact
that it is now continuing into a fourth day of negotiations is
evidence that EU leaders are ready to do everything it takes to
maintain unity in the euro zone, Foley said.
If they agree on a recovery fund, said Mike Bell, global
market strategist at J.P. Morgan Asset Management, that would
boost confidence in the euro regardless of the numbers in the
deal.
"What has been established is 'are the EU in times of need
willing to pull together and display unity in order to help out
the hardest-hit economies?', and so the exact number is less
relevant than getting a deal done," Bell said.
BNP Paribas had two trades set in to express their positive
view on the euro: long euro/dollar via options with a strike of
$1.16, and a long euro/Swiss franc, said Parisha Saimbi, G10 FX
strategist at BNP Paribas. "Within the next couple of weeks,
seeing $1.16 wouldn't be completely out of the woods.
"On a day like today perhaps we could test $1.15 if we do
get a deal announced today ... perhaps we can see an initial
30-, 40-, 50-pip pare back to take profit, but I think the trend
should still be there for us to get up to $1.16," she said.
"It's still right to believe that the market hasn't fully
priced in a deal outcome," Saimbi said, noting that according to
BNP's positioning index, money managers were long the euro,
albeit still half-way before seeing positions becoming
over-stretched.
Elsewhere, the U.S. dollar index USD= was flat at 95.83,
with its advance kept in check by investors' strong risk
appetite amid expectations of more stimulus from Europe and from
the United States.
($1 = 0.8742 euros)

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