FINAM FOREX: Euro continues to grow after ECB meeting

22 January 2021

Anna Zaitseva, analyst, FINAM Group

On Friday, January 22nd, EUR / USD rallies 0.10% and is trading near 1.21710, while the DXY dollar index shows zero change and is at 90.123. A day earlier, the single European currency gained 0.49% to 1.21673, while the DXY index fell 0.38% to 90.127.

The ECB meeting was in the spotlight yesterday, following which the regulator kept the key rate at 0%, as well as left unchanged other parameters of monetary policy, confirming its intentions to keep interest rates low in order to stimulate economic recovery. ECB President Christine Lagarde noted the high risks for the European economy due to the repeated wave of coronavirus in the region and the persistence of strict restrictive measures. At the same time, Lagarde stressed the importance of mass vaccination of the population, which is one of the main conditions for the return of the economy to normal functioning. According to her, the new outbreak of the disease and the still low rates of vaccination will negatively affect the results for the 4th quarter of 2020 and will likely continue to put pressure on economic activity in the 1st quarter of this year. At the same time, the ECB notes a decrease in political risks after reaching an agreement between the EU and the UK on the terms of Brexit, as well as after Joe Biden’s victory in the US presidential election. As for the Pandemic Emergency Purchase Program (PEPP), an amount of 1 trillion euros remains unspent at the moment, while Lagarde does not exclude that the use of these funds in full may not be necessary in the event of an improvement in external conditions.

In terms of macroeconomic statistics, important indicators for the eurozone were not published yesterday, and the released data on the US were generally positive. Thus, the number of initial applications for unemployment benefits decreased last week by 26 thousand, to 900 thousand, which turned out to be better than the consensus forecast of 910 thousand. The number of issued building permits increased in December to 1.709 million compared to 1.635 million in the month earlier, while analysts had expected a decline to 1.60 million. The volume of new home construction rose in December to 1.669 million against 1.578 million in November, which also turned out to be better than the forecast of 1.56 million. PMI in the manufacturing sector from the Federal Reserve Bank of Philadelphia increased in January by 17.4 percentage points, to 26.5 points, while analysts had expected a more modest increase to 12 points.

Today, we should follow the publication in the eurozone, Germany and the United States of preliminary January data on PMIs in the manufacturing and services sectors.

The EUR / USD rate consolidated above the level of 1.2150 and the line of the 50-day moving average, which indicates in favor of the continuation of the upward movement at least to the level of 1.2200. At the same time, the slowdown in the growth of stochastic lines gives an opposite signal to decrease or at least consolidate for the instrument in the short term.

This information is not investment advice.


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