Euro traded upwards yesterday after Treasury yields declined in anticipation of important reports to be released today. Nevertheless, the trend in EUR / USD is still bearish, so any upward movement will most likely be short.
Yesterday, it was revealed that the ECB increased its bond purchases last week even amid repeated warnings that a rise in yields threaten the region's economic recovery. All in all, the central bank purchased bonds worth € 18.2 billion, much higher than the € 16.9 billion it bought a week earlier. However, the ECB said that € 6.3 billion worth of bonds had been redeemed, which partially offset the volume of net purchases. Following these data, German bonds remained near daily highs, with the yield on 10-year bonds falling five basis points to -0.33%.
On the bright side, the ECB will meet tomorrow, during which the members will present new economic forecasts and decisions on the monetary policy. Many expect the regulator to announce an increase in the bond buying program to correct the situation in the bond market. If this happens, the euro may strengthen, so do not rush to sell the currency at current price levels.
But before tomorrow's meeting, the United States will publish an important report on inflation, which many investors place very serious emphasis on. This is because if the figure comes out better than expected, another sharp rise in bond yields may be observed, which will accordingly lead to the further strengthening of the US dollar against other world currencies. Then, after that, it is possible that a number of buy stops will be removed in anticipation of the end of the bearish market (for EUR/USD), or at least an upward correction. Major players might use this opportunity to close their short positions, especially since many speculative players expect EUR/USD to decline after today's data, but then rise again immediately after.
Therefore, no one should underestimate the cunning nature of the market, since an instant reversal could occur anytime.
Regarding EUR / USD, a break above 1.1905 will obviously trigger a further rise towards 1.1960 and 1.2000. But if the euro returns to 1.1855, the price may drop to the 18th figure, or lower at 1.1750.
Of course, one should not expect a rapid growth either, as according to the OECD, the EU economy will recover slower than projected. This is mainly due to the high infection rate and slow pace of vaccination in the bloc, which forces many European countries to remain locked for a longer time.
In any case, the OECD raised its economic forecast for 2021 from 4.2% to 5.6%, and more than doubled its forecast for the United States to 6.5%. Its data show that timely measures taken by the US will boost output by about 3-4% this year, adding 1.0% to global GDP. "Growth in production will not only lead to a sharp recovery in the US economy, but will also contribute to global growth by increasing demand," said Lawrence Boone, chief economist at the OECD.
On another note, today, many expect the US Congress to approve the long-awaited $ 1.9 trillion bailout bill, which includes direct payments to most Americans, assistance to small businesses, financial aid to schools and more that could help the country recover from the devastation of the coronavirus pandemic. Given the fact that millions of households can start receiving payments almost immediately, and the first checks will come already at the end of this month, a surge in economic indicators could occur at the end of the 1st and the beginning of the 2nd quarters of this year.
To put it more precisely, the package will provide a direct payment of $ 1,400 per person, $ 2,800 for a married couple and $ 1,400 for each dependent in the household. Individuals earning up to $ 75,000 will receive the full amount, as will married couples earning up to $ 150,000. The size of the check will only decrease for those who earn a little more, with a hard cap of $ 80,000 for individuals and $ 160,000 for married couples.
By some estimates, about 85% of Americans will be eligible for benefits.
GBP
A break above 1.3920 should push GBP / USD towards the 40th figure, or even towards 1.4060. But if the quote returns below 1.3800, the pound should continue trading downwards in the market.
The latest report on UK retail sales did not deliver a significant impact on the pound, even though the figures returned to the gains recorded last month. In fact, the decision to reimpose quarantine measures led to a small growth in sales, thereby raising it by 1% year-on-year this February.
But while the government is actively fighting the coronavirus pandemic, there are more and more people who are interested in choosing the right spending strategy. The following wording appeared in yesterday's Treasury report: "So far, there is no evidence that the government's £ 22 billion COVID-19 testing and tracking program has helped reduce the rate of infection among the population." Nevertheless, this is unlikely to seriously affect the situation, since the main goal of the UK Prime Minister, as he repeatedly said, is to vaccinate the population against coronavirus as quickly as possible. Such should make it possible for the UK to remove restrictive measures that slow down economic growth in the country. Finance Minister Rishi Sunak adheres to the same position.
