The European currency continues its decline in pair with the US dollar, and the main reason is that investors do not believe in the rapid prospect of economic recovery in the region. The European Union's 750 billion euro recovery fund is still not working: the situation has only worsened since the German Supreme Court imposed a temporary ban on the country's participation in the program last Friday. After the eurozone countries have provided spending plans, the European Commission no longer considers the idea of an EU Stabilization Fund as good as it was last summer. Given the fact that the fund is not even close to being formed, and it still needs to go through 9 circles of hell before it works, it is clear why investors are not so actively looking in the direction of buying risky assets. On Saturday, the ECB's chief economist, Philip Lane, said that most of the national spending plans that have been made available for review are not compliant and need to be reworked. If you add to all this the slow vaccination program of the EU countries – the overall picture of the economic recovery is quite bleak.
The European Central Bank continues to deliver on its promises and maintains an increased pace of bond purchases aimed at curbing rising bond yields. The report shows that net purchases last week amounted to 19 billion euros against 21.1 billion euros recorded in the previous week. Earlier this month, policymakers decided to increase the volume of bond purchases, after their sell-off amid the growth of the US economy led to a jump in yields, which is not good for the economy, forcing the central bank to service more expensive domestic and foreign debt.
Today's reports on the eurozone did not return euro buyers to the market, which led to another wave of selling of the EURUSD pair. From a technical point of view, the situation deteriorated significantly after the bears broke through the large support of 1.1760. This led to the immediate demolition of several traders' stop orders and a new wave of falling trading instruments already in the area of the minimum of 1.1715. The next target of the bears is the area of 1.1680, where the bulls will again show activity. If buyers manage to protect the support of 1.1715 in the second half of the day today, then we can at least count on an upward correction to the area of 1.1755. A break in this range will necessarily lead to a larger wave of euro growth already at the base of the 18th figure.
Confidence in the eurozone economy improved in March, however, it is worth understanding that the results were collected even before taking into account the new wave of coronavirus infection and the closure of several countries to quarantine. According to the European Commission, the index of economic sentiment rose to 101.0 points in March from 93.4 points in February. The data was better than the forecasts of economists, who had expected the index at 96.0 points. Nevertheless, it is worth noting that sentiment was below its pre-pandemic level, and given that viral restrictions continue to apply in many European countries, it is unlikely to expect such an increase in the coming months. An equally important index of consumer confidence in the eurozone coincided with its preliminary value and amounted to -10.8 points against -14.8 points in February. Confidence in the service sector continued to recover, which was in line with the optimistic expectations of company managers.
Data on Germany and rising inflation did not change investors' attitude to risk, although today's report once again proves the fact of a more active economic recovery after the third wave of coronavirus. The Destatis report states: consumer price inflation in Germany accelerated in March 2021, and this was mainly due to rising energy prices. Consumer prices rose 1.7% year-on-year in March after rising 1.3% in February. The annual figure was in line with economists' expectations, as was the monthly price change report, which rose 0.5% in March after rising 0.7% in February. German inflation is expected to continue to rise in the coming months.
The data on Italy and France did not help the situation with the euro much. A report from the Istat statistics office shows that the producer price index rose 0.7% year-on-year in February after falling 0.3% in January. Prices rose for the first time since June 2019. Every month, producer prices rose only 0.5% after rising 1.4%. Consumer confidence in France rose in March to its highest level in three months. Households' expectations about their prospects and their financial situation improved, which led to a sharp jump in the indicator. According to the INSEE survey, the consumer confidence index rose to 94 points from 91 points in February. Economists had expected the index to remain unchanged.
