Fundamental Euro forecast today
People, who can earn money, can read between the lines. The US new administration and Joe Biden may suggest an unwillingness to weaken the dollar. However, the very fact of Janet Yellen’s appointment to theTreasury Secretary gives the green light to the greenback sellers. At the press conference following the ECB’s January meeting, Christine Lagarde may repeat the mantra that the central bank is closely monitoring the euro exchange rate. However, the repetition of the previous wording will most likely contribute to the EURUSD growth. It is simply because the ECB, after the pair’s correction, has fewer reasons to worry about the euro’s appreciation than in December
The S&P 500 bulls correctly interpreted Joe Biden’s call for national unity. The new US president is preparing Congress to adopt the new $1.9 trillion fiscal stimulus package. In addition to the positive corporative reporting, this fact allowed the US stock index to hit a new all-time high. According to FactSet, as of January 20, actual earnings data were better than expected by 88% of companies reporting. Besides, investors believe in the rebound of the US economy in the second quarter, so the US stock market’s bullish sentiment is natural.
History knows only a few examples of the S&P 500 fall during economic booms. In 1946, after a short downturn, investors feared that the economy would repeat the recession of the 1930s and sold stocks. In 1980, during a short-term recovery in the double-dip recession, the stock index fell as the Fed tried to mitigate excessive inflation growth. A drop in the S&P 500 during a time of GDP growth is rare. So, investors naturally stick to a strategy of buying the stocks on the corrections and selling the dollar on the price rise. The EURUSD current correction seems to be just the rebalancing of the large investors’ positions.
The ECB passive attitude will support the recovery of the euro uptrend. Investors don’t expect anything new from the central bank, so they should focus on Christine Lagarde’s press conference. Not long ago, the ECB president supported the central bank’s forecast for a 3.9% growth of the euro-area GDP in 2021 following a decline by 7.3%. She said that it is too early to discuss the ECB monetary policy tightening, and the ECB is monitoring the euro’s exchange rate. She is likely to repeat the same on January 21. The Central Bank has nothing to surprise investors, and the fact that the EURUSD correction reduces the need for verbal intervention, on the contrary, may strengthen the euro.
EURUSD trading plan for today
I do not think the ECB will expand the QE. The euro-area economy adjusts to the pandemic and improves its performance. The US dollar bears go ahead, and the EURUSD bulls could be only discouraged by slow vaccination. The EU, where 1.4% of the population have been inoculated, is behind the UK (7.1%) and USA (5%). However, the progress in the vaccination campaign supports the euro. If the euro breaks out the resistance at $1.215, it can be the reason to buy.
Market Review 21 Jan 2021
EUR is showing insignificant growth against USD during today’s Asian session, recovering after falling the day before. At the same time, EUR managed to renew its local highs since January 15 on Wednesday, continuing to receive support from a rather weak position of USD in the market. Macroeconomic statistics from Europe published on Wednesday did not have a noticeable impact on the instrument’s dynamics. Investors’ attention was focused on the inauguration procedure of the 46th President of the United States and his first decrees in office. Anyway, the German Producer Price Index in December increased by 0.8% MoM after rising by 0.2% MoM in the previous month. Analysts had expected increase by 0.3% MoM only. In annual terms, the PPI accelerated by 0.2% YoY after falling by 0.5% YoY in November. The Core Consumer Price Index in the eurozone in December rose by 0.4% MoM and 0.2% YoY, which coincided with the data of the previous period and the neutral forecasts of experts. European investors await the release of the ECB’s interest rate decision today, with a follow-up press conference by officials. It is assumed that the European regulator will not change the parameters of its monetary policy.
GBP is trading upward against USD in today’s morning session, building on the “bullish” impetus, formed earlier this week. Significant support for GBP on Wednesday was provided by strong data on consumer inflation, which gives hope that the British economy will be able to overcome the consequences of the current lockdown much faster than the previous one. In December, the Consumer Price Index rose by 0.3% MoM after falling by 0.1% MoM in November. Analysts had expected growth of 0.2% MoM. On an annualized basis, consumer prices added 0.6% YoY, which turned out to be twice better than last month’s results. Forecasts suggested an increase of 0.5% YoY. Given the fairly good macroeconomic background, analysts believe that the Bank of England is unlikely to resort to additional support measures at its next meeting, which will be held on February 4. However, investors are monitoring vaccination statistics in the country to speculate when the government will lift the quarantine restrictions.
AUD is showing confident growth against USD during today’s Asian session, updating local highs of January 15. The instrument is once again taking advantage of the weakness in USD, which appears to remain under pressure since Joe Biden’s inauguration. Additional pressure on USD was exerted by Janet Yellen’s speech in the Senate, which confirmed the intention of the new presidential administration to abandon the “policy of a weak dollar”. Moderate support for AUD on Thursday was provided by the published report on employment in Australia for December. The Unemployment Rate fell from 6.8% to 6.6%, 0.1% ahead of analysts’ forecasts. At the same time, the Employment Change has expectedly slowed down from 90K to 50K. The report also reflected an increase in part-time employment with a moderate decline in full-time employment.
USD continues to show a downtrend against JPY during today’s Asian session, updating local lows since January 7. The positions of USD remain under pressure after Janet Yellen’s speech in the Senate earlier this week. Investors expect a prolonged period of low interest rates to continue with an accompanying sharp increase in government spending, which can already be seen from Joe Biden’s first decrees. The new US president also announced a program to support the American economy for almost USD 2 trillion, which, in addition to new direct payments to households, provides for an increase in the minimum wage and unemployment benefits. Japanese investors today are taking a lead from the decision of the Bank of Japan to keep the key interest rate at –0.1%.
Gold prices are consolidating today after a sharp rise the day before, which brought the instrument to new local highs since January 8. Strengthening of the “bullish” dynamics on the instrument was facilitated by the statements from the candidate for the US Treasury Secretary Janet Yellen, who supported Joe Biden’s initiatives and a new stimulus package for the US economy worth almost USD 2 trillion. In addition, the demand for gold remains high amid the continuing dynamics of the incidence of COVID-19 in the world. Vaccination campaigns, which are actively carried out in many countries of the world, have not yet yielded a statistically significant result, although it should be noted that the peaks in the incidence of the second wave of pandemic have been passed in many regions.