The European currency may continue to strengthen against the US dollar today. All the attention of traders will be focused on the speech of the President of the European Central Bank, Christine Lagarde, who will again talk about the recovery of the euro zone and the prospects for inflation. In her last interview, Lagarde said that the recovery in the euro zone will begin only this summer. Her expectations can hardly be questioned. There is no doubt that the economy will begin to recover in the summer, by which time the coronavirus pandemic will no longer have such a serious impact as it does now. It is another matter how the curtailment of various government support programs and the ECB's refusal to make an emergency bond purchase will affect the prospects in the future.
In a recent interview with Le Journal du Dimanche, Lagarde expressed confidence in the region's ability to get out of the coronavirus crisis, which will make the economy stronger and more resilient to similar problems in the future. She also called on governments to speed up work on new spending plans so that the European Commission can start allocating funds from the EU Stabilization Fund, which was set up last summer. According to the latest forecast, the European Central Bank forecasts economic growth of about 4% this year after contracting by almost 7% in 2020. Such indicators are quite achievable, the main thing is that support is not curtailed before the economy enters an active phase of recovery. Much will also depend on the pace of vaccination in the EU, which so far leaves much to be desired. The latest report shows that only 3.6% of EU residents have been vaccinated so far. Among the leaders is the United Kingdom, in which 17 100 people have already received the vaccine. For example, in the United States, this ratio is 12 to 100. The current emergency bond-buying program, conducted by the European Central Bank for a total of 1.85 trillion euros, will also be important. Most likely, Christine Lagarde is unlikely to somehow adjust its volume and timing in the near future, which will benefit the European currency and the economy. It will be no less difficult for the European Central Bank to determine the moment when it is necessary to curtail support measures in order to prevent the economy from overheating and inflating bubbles. Lagarde noted that the ECB should not repeat the mistakes of the past, immediately ending fiscal and monetary stimulus. Instead, the authorities should offer flexible support, which will be phased out gradually.
The sharp rise in the European currency last Friday came immediately after the publication of a report by the US Department of Labor, which indicated that the number of people employed in the non-agricultural sector increased by 49,000, after a decrease of 227,000 in December 2020. Economists had expected an increase of 50,000. The most active growth was recorded in the service sector, as well as in the field of education, both public and private. The maximum job losses were observed in the leisure, entertainment and hotel industries. Meanwhile, the unemployment rate fell to 6.3% in January from 6.7% in December 2020, which was a surprise, as economists had predicted that the indicator would remain unchanged. However, despite these figures, the high unemployment rate in the United States will continue to persist, as the market has only begun to gradually recover from the second wave of the coronavirus pandemic, which has not yet ended. The introduction of the vaccine will allow us to count on a more active growth of the labor market. According to the forecast of a number of economists, the unemployment rate should fall to 4.5% by the end of the year. As for the growth of American earnings, the average hourly wage in January of this year increased by only $ 0.06 to $ 29.96, while the annual wage growth was unchanged and amounted to 5.4%.
In a recent speech, Treasury Secretary Janet Yellen said that the United States could return to full employment in 2022, but only if Republicans do not balk and adopt a sufficiently robust package of measures to stimulate the economy in the amount of $ 1.9 trillion. Otherwise, there is a risk of a slower recovery in jobs and the economy. Yellen expressed her concerns about the growth rate of the US labor market, as problems continue to be observed even against the background of the deployment of a universal vaccination program. Millions of people are still unable to find work, and it is therefore necessary to continue supporting the low-income segments of the population. According to Yellen, without adequate support, the US labor market can recover to its pre-crisis levels only by the end of 2025. And although Yellen acknowledged that President Joe Biden's proposed $ 1.9 trillion stimulus plan is not specifically aimed at creating jobs, the one-time payments that are provided for in this plan will necessarily cause an increase in spending, which will lead to the need to create new jobs. But there are also those who disagree with the positions of the current Minister of Finance. Larry Summers, a former treasurer, said in a recent interview that Biden's bailout package is too large and carries "big risks," including uncontrolled inflation in the future.
Before talking about the less important Friday fundamental statistics, it is necessary to recall that this week will be the second impeachment trial of Donald Trump. Democrats want to hold the former US president accountable for the brutal siege of the Capitol. The impeachment of the former president will not allow Trump to take part in the presidential race anymore. The trial is expected to begin on Tuesday and will feature a lengthy and complex process. This time, the Democrats are calling Trump to account for the rally that took place last January 6, which then led to the storming of the Capitol. Experts expect that Trump will once again be able to avoid impeachment, although some risk of his announcement still remains.
Returning to the topic of reports, it is necessary to pay attention to the data from the US Department of Commerce, according to which, the US trade deficit decreased in December 2020. This was due to a sharper increase in exports. The trade deficit narrowed to $ 66.6 billion in December 2020 from $ 69.0 billion in November. Economists had expected the trade deficit to narrow to $ 65.7 billion. The reduction in the deficit was due to a sharp increase in exports by 3.4% to $ 190.0 billion, while imports increased by only 1.5% to $ 256.6 billion. Exports increased due to the supply of petroleum products, soybeans, as well as cars and spare parts to other countries. The growth occurred in the column of imports of industrial goods and passenger cars.
Data on German production orders did not have a serious impact on the EUR/USD pair. According to a Destatis report, German manufacturing orders fell more than expected in December 2020. Orders fell 1.9% from the previous month, after rising 2.7% in November. Domestic orders were down 0.9%, while external orders were down 2.6%. On an annualized basis, the growth in industrial orders fell to 6.4% from 6.7% in the previous month.
As for the technical picture of the EUR/USD pair, the bulls are now focused on how to break above the 1.2050 resistance. However, it should be understood that the growth of risky assets, which we observed last Friday, was not due to a new influx of large buyers of the euro, but due to profit-taking on long positions in the US dollar. Now, the bulls will need to make their efforts to break through and consolidate above the resistance of 1.2050, which will open a direct road to the highs of 1.1090 and 1.2130. It will be possible to talk about the return of pressure on the trading instrument only after the pair collapses below the base of the 20th figure. Only after that, the EURUSD will return to the annual lows in the area of 1.1950.
