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The minutes of the ECB December meeting indicated possible further stimulation of the European economy. On this

DATE OF PUBLICATION: 2021-01-14 17:28:45 The publication of the minutes from the December 2020 meeting of the European Central Bank has put pressure on the euro as governing board members disagreed on what additional monetary stimulus should have been adopted during the past meetings. However, all committee members recognized the need to expand the asset buyback program, the question remained only in its scope. The minutes also say that the expected shape of economic recovery is now very different from V- and U-shaped. Now, to maintain favorable financing conditions, additional credit assistance is required, which should include the economic consequences that have occurred and will still occur due to the second lockdown of the European economy as a result of the second wave of the coronavirus pandemic. At the end of last year, board members also discussed the likelihood of a downward revision of the projected inflation trajectory due to the risks of weakening inflation expectations. The published report from the meeting, which took place on December 9-10, 2020, also contains concerns about the high exchange rate of the European currency. , which will lead to more negative consequences and become another deterrent to inflationary growth. Let me remind you that in the 4th quarter of 2020, the European currency significantly strengthened against the US dollar, putting pressure on import prices. Let me remind you that following the meeting, the Board of Governors ultimately decided to increase the bond buyback program by 500 billion euros, bringing it to the level 1.85 trillion euros. The package was approved only after key European officials, together with the President of the European Central Bank, came to the conclusion that it is not necessary to spend the entire amount, but the allocation of funds will be carried out as needed. Let me remind you that yesterday the President of the European Central Bank Christine Lagarde delivered a speech. which put pressure on the euro. Lagarde said that despite the spread of the coronavirus and the resumption of quarantine, the European Central Bank’s expectations for economic growth in the eurozone remain very positive. The head of the ECB noted that many of the uncertainties that previously darkened the prospects for economic recovery have now cleared up. We are talking about the US elections and the Brexit trade deal with the UK, as well as the start of vaccinations in the EU. At the same time, Lagarde warned that monetary policy and the support that it provides to the entire system will continue at the same levels. Today’s report on GDP growth in Germany in 2020 once again reminded investors how difficult last year. After a decade of growth, the German economy has gone through a deep recession – comparable to the 2008-2009 financial crisis. Today’s Destatis report indicates that the gross domestic product of Europe’s first largest economy fell 5% in 2020, after rising 0.6% in 2019. It is worth noting that the economic downturn was less severe than in 2009. when GDP fell 5.7%. Economists had expected GDP to fall 5.3%, a sharp drop in direct response to all sectors of the economy being hit by the coronavirus pandemic. In industry, which accounts for just over a quarter of the entire economy, economic indicators sank 9.7%. But the biggest downturn was in the services sector. In terms of less significant financials, it is worth mentioning the report on house prices in the eurozone, which continued to rise in the 3rd quarter of 2020. According to Eurostat, house prices rose by 4.9% per year, in line with the same growth rate as in the second quarter of last year. Among the member countries for which data are available, the highest annual increases in house prices were recorded in Luxembourg, Poland and Austria, while prices in Cyprus and Ireland, on the contrary, decreased. As for the technical picture of the EURUSD pair, it seems that pressure on the European currency will continue in the future. If the bulls do not manage to regain the 1.2180 range today, and the market remains below this level, we can count on the return of risky assets to the lows of the month in the 1.2130 area and their renewal, which will open up a direct opportunity for the euro to fall to the 1.2080 and 1.2010 areas. It will be possible to speak of a reversal of the downtrend only if a bad inflation report in the US leads to a strong bullish impulse and a breakout of the 1.2225 high. Material provided by InstaForex – Source – InstaForex

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