The US dollar continued to regain its lost positions against the euro and the British pound yesterday, as US Treasury yields once again rushed to their annual highs. Yesterday's decisions of the Federal Reserve System further instilled confidence in investors in the correctness of their approach. According to the data: the US economy is projected to accelerate more rapidly this year by 6.5%, compared with the previous December forecast of 4.2%. Inflation is expected to reach 2.4% in 2021, which is above the target. However, in 2022, the indicator will again fall to the level of 2%. However, the Fed still expects to keep the benchmark interest rate at around zero until 2023.
The speech of the President of the European Central Bank, Christine Lagarde, provided small support for the euro: the statements made were identical to those made by the president of the ECB last Thursday after the meeting of the European regulator. The head of the ECB believes that the short-term economic prospects of the eurozone remain in an area of uncertainty due to the coronavirus pandemic, so maintaining favorable financing conditions is very important. It is impossible not to agree with this, since according to the latest data, several European countries are returning to quarantine measures again, not having time to completely cancel them due to the rapid increase in the number of new infections with coronavirus.
A similar statement on the topic of uncertainty was made yesterday by the head of the Federal Reserve System, Jerome Powell. Christine Lagarde also recalled the promise to increase the volume of bond purchases under the PEPP emergency program. This will be done to stop the growth of profitability. However, Lagarde immediately warned that the effect of these measures will be noticeable over a longer period. Lagarde did not ignore the exchange rate of the European currency, which at the beginning of the year created quite a lot of problems for the European central bank. "We are ready to adjust all our instruments if necessary, but at the moment more decisive actions in the field of fiscal and fiscal policy are important," ECB President Christine Lagarde said.
As for the technical picture of EUR/USD, in the first half of the day, the bulls tried their best to protect the support of 1.1940, but nothing came of it, which only increased the pressure on risky assets. In the morning forecast, I paid attention to the implementation of this scenario and advised to increase short positions after the breakdown of the support of 1.1940 with the key goal of returning to the minimum of 1.1885. The sellers' longer-term target remains the support of 1.1835. It will be possible to talk about changes in the direction of the EUR/USD pair only after the bulls break above the level of 1.1990. This will open a direct road to the highs in the area of 1.2050 and 1.2110.
GBPUSD
The results of today's meeting of the Bank of England did not surprise traders, which led to another loss of the pound. Of course, there was also a rapid strengthening of the US dollar against the pound and the background of rising treasury bond yields.
The members of the Bank of England committee unanimously decided to leave the key interest rate and quantitative easing measures unchanged. The nine-member Monetary Policy Committee and Governor Andrew Bailey voted to keep the interest rate at 0.10% at the last meeting. The quantitative easing program was also maintained at 895 billion pounds. This suggests that the British regulator will continue to make weekly purchases of bonds worth about 4.4 billion pounds. Although some expected an increase in the volume of purchases on the principle of the European Central Bank. However, as we can see, the Bank of England is not particularly concerned about the growth of yields and the increase in the cost of public debt served. It would be better to deal with the coronavirus pandemic until the end. It turns out quite well.
All members considered the current monetary policy acceptable. The Bank of England has said it has no intention of tightening monetary policy, at least until there is clear evidence that significant progress has been made on economic growth and inflation. A definite plus is a fact that the prospects for the UK economic recovery are beginning to improve due to the rapid campaign to vaccinate the population against coronavirus. However, the outlook for the economy, especially the growth in supply and demand during the recovery from the pandemic, remains uncertain.
As for the technical picture of the GBPUSD pair, trading remains in a wide side channel of 1.3810-1.4000, the exit beyond which will determine the medium-term direction of the pair. In the meantime, the bears are aimed at regaining control of the nearest support of 1.3900, the breakdown of which will push the pound lower to the area of 1.3855. It will be possible to say that buyers still have the strength to make another breakthrough to break the upper limit of the side channel only after the GBP/USD pair closes the trading day above the level of 1.3945.
As for today's figures, the reports did not significantly affect the mood of investors. Eurostat reported that the eurozone's trade surplus declined in January this year compared to the previous month. This was due to weak exports. According to the data, the trade surplus decreased to 24.2 billion euros from 27.5 billion euros in December 2020. Exports fell 2.8% month-on-month, while imports fell 1.3%.
A separate report on the trade surplus was released today for Italy. The indicator, on the contrary, increased in January of this year. According to statistics office Istat, the trade surplus rose to 1.587 billion euros in January from 0.534 billion euros compared to January 2019. In December, the trade surplus was 6.856 billion euros. Exports fell by 8.5%, while imports fell by 11.6%.
