The Bank of England will decide today on the issue of interest rates, as well as further measures that the regulator can take to support the economy. Yesterday, UK Prime Minister Boris Johnson announced the smooth exit of the country from quarantine, presenting three stages, the first of which will begin to operate on May 11. Small companies, enterprises and shops are to resume work on the said date.
Interest rates will most likely remain unchanged, but the volume of the bond purchase program may increase. Many experts expect the Bank of England to expand its program and increase it by about £100 billion, which needs to be done anyway, since the current measures taken to save the economy are critically lacking. If the English regulator fails to take this drastic measure to expand the program, the pound will most likely continue its descent against the US dollar. Thus, it is better to do such earlier to smooth out the consequences of the coronavirus pandemic. However, if the decision to expand escalates to £ 200 billion, just as announced in March, demand for the pound will decline.
As for the current technical picture of the GBP/USD pair, bears will most likely test the lows of 1.2240, a break of which will lead to a larger descent of the pound in the range of 1.2200 and 1.2170. Meanwhile, strong resistances that would hinder the upward move are the levels 1.2350 and 1.2400.
EUR/USD
The report published yesterday by the ADP did not affect the US dollar much, even though it revealed that companies in the US laid-off about 20.2 million jobs in April 2020. The massive lay-off was due to the quarantine measures introduced by the country to prevent the further outbreak of the pandemic, which declined all sectors of the economy. The report indicated that most job losses, about 8.96 million, came from large businesses, followed by small businesses, which lost about 6 million. The average business loss in April is about 5.27 million. However, these indicators do not reflect yet the full impact of the pandemic, as the report only included data obtained on April 12 this year. ADP noted that current job losses on such a scale have no precedent, and in April alone, the economy lost twice as many jobs as during the Great Depression.
Employment sank the most in the services sector, with about 16 million job losses in April. The manufacturing sector, meanwhile, lost about 4.23 million jobs.
Fed representatives made several statements yesterday, which generally spoke about the bright prospects of economic recovery in the 3rd quarter of this year. Thomas Barkin, president of the Richmond Fed, said that although the economic conditions are poor, he is still confident that the recovery would be dramatic. However, it would take a long time to return to normal levels.
Fed spokesman Robert Kaplan also said that he expects a very phased and very gradual opening of the economy, but the 2nd quarter GDP will still likely shrink from 25% to 30% in annual terms. Unemployment can peak about 20%, and by the end of the year, it will be 8% to 10%. Thus, in this regard, the Fed is expected to maintain an ultra-soft monetary policy for a long period of time, and real economic growth will begin only in the 3rd quarter of this year.
As for the technical picture of the EUR/USD pair, a break of the major support at 1.0785 will increase pressure on the risky assets, which will lead to a larger sell-off to the area of the lows at 1.0750 and 1.0720. Upward move will be limited by yesterday's resistance of 1.0830, a break of which will push bulls to highs in the 1.0885 area.
