EURUSD: The decision of the ECB and Christine Lagarde’s speech did not affect the euro. What to do next?

Trading 30 avr 2020 Donner votre avis

The decision of the European Central Bank did not affect the markets, as, in fact, the attitude of the regulator to monetary policy has not changed. According to the data, the European Central Bank left the deposit rate at -0.5%, although some expected that the rate could be lowered by 0.25% points. The regulator also kept the key refinancing rate unchanged at 0.0%. The Central Bank expects that key interest rates will remain at current or lower levels for quite a long time.

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Perhaps the only change that was made was a reduction in the interest rate on TLTRO operations. In them, the interest rate will be 50 basis points lower than the deposit rate. The ECB said that it will continue to buy under PEPP as long as the coronavirus crisis lasts, or at least until the end of 2020.

During her speech, the President of the European Central Bank did not shine with statements, noting the unprecedented contraction of the economy, which requires ambitious and coordinated efforts of governments. Lagarde promised that she will do everything necessary to support the economy during this difficult time, as, according to her forecast, the GDP of the Eurozone may fall by 5%-12% this year, but the more precise scale of the reduction depends on the duration of the quarantine measures.

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Today's data on French GDP in the Eurozone did not significantly affect the European currency, although traders were optimistic about the preliminary report on inflation.

According to the statistics agency, in the 1st quarter, the French economy declined at a record pace in the history of the indicator, and no one doubts that the country has entered a recession. The main problem for European countries is the coronavirus pandemic, as well as the quarantine measures that governments have introduced to contain it. The Insee report indicates that in the 1st quarter compared to the 4th quarter of 2019, GDP declined by 5.8% after falling by only 0.1%. Economists had expected that in the 1st quarter, GDP declined by 4.2%.

As for the euro area as a whole, it also marked the fastest decline in the entire history of observations. According to data, the GDP of the Eurozone countries in the 1st quarter of 2020 decreased by 3.8% compared to the 4th quarter of 2019. In annual terms, the Eurozone's GDP in the 1st quarter collapsed immediately by 14.4%. However, it is worth noting that economic activity in the northern countries of the Eurozone declined at a more moderate pace, while the southern countries of the region will need much more assistance, and therefore support from the ECB, to prevent a real collapse of the economy. However, even with a significant injection of funds and a balanced fiscal policy, it will take a very long time to restore the economies. Do not forget that we are waiting for data for the 2nd quarter of this year, which will be much worse than the current indicators.

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As for the unemployment rate in the Eurozone, it was surprisingly quite limited, which was helped by measures taken by various governments, as well as programs to subsidize wages for employees of companies. According to the statistics agency, unemployment in the Eurozone rose to 7.4% in March from 7.3% in February.

As for the German labor market, which is the most resilient to the current crisis, the number of applications for unemployment benefits in Germany increased much more than expected in April. According to the Federal Employment Agency, the number of unemployed people increased by 373,000 in April after rising by 1,000 in March, while economists had expected the number of unemployed people to rise by 95,000 in April. The unemployment rate rose to 5.8% with a forecast of 5.2%.

As I noted above, the preliminary data on inflation in the Eurozone also came to the "liking" of traders. The report indicated that the Eurozone's consumer price index (CPI) slowed to just 0.4% in April from 0.7% in March, while many economists had forecast it to fall to 0.2%. So far, the ECB is not worried about inflation. The bank will return to this issue only after the normal functioning of the economy has resumed. Up to this point, the problem may create the risk of deflation.

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Given that none of the central banks, namely the Fed and the ECB, has made any adjustments to their monetary policy, we can conclude that the pressure on risky assets will return in the near future after data for April of this year begin to arrive on the market. To continue the growth of the European currency, a break in the resistance of 1.0890 is required, which will lead to the demolition of a number of stop orders and a more powerful movement of the trading instrument up to the highs of 1.0940 and 1.0990. If traders react with sales to the data on the US labor market, then most likely a break of the support of 1.0840 will lead to a larger decrease in risky assets in the area of lows of 1.0775 and 1.0725.

The material has been provided by InstaForex Company - www.instaforex.com

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