Bullish traders managed to close the gap in euro and pound yesterday, which formed when the market reacted to the Federal Reserve's minutes of the meeting.
One reason that made them motivated was the news that the Italian government approved a € 40 billion ($ 49 billion) stimulus package to support businesses and families affected by the economic lockdown. Prime Minister Mario Draghi said the measures will support Italy's recovery, which is now picking up, thanks to the vaccination programs and slowdown in infection rate.
The new package will allocate € 17 billion to companies and self-employed workers, € 9 billion to loans and liquidities and € 4 billion to workers in sectors most affected by the crisis. It also includes additional cash benefits to seasonal and tourism workers, as well as tax cuts for families buying their first home. Funding for the package will come from cost reductions previously approved by the administration.
Since the pandemic started, Italy's total government spending exceeded 170 billion euros, bringing debt to nearly 160% of GDP. Last year, the economy contracted by 9.0% due to quarantines. It is only now that the Italian economy is showing the first signs of growth. Draghi said that if the situation continues to improve, Italy will no longer need support measures.
The Italian government also announced that it will stop the curfew and fully open the economy by June 21.
Sadly, the new package canceled the increased tax breaks originally planned by the government for mergers and acquisitions in the banking sector.
On a different note, Germany reported a strong growth on PPI yesterday, citing a very sharp jump on the data for April. Apparently, prices rose 5.2% year-on-year, but decreased 0.8% month-over-month. One of the main reasons is the 8.2% increase in prices for intermediate products. Energy prices also rose by 10.6%.
As for the current account balance of the ECB, a sharp decline to € 18 billion was recorded. Last year, the surplus was at € 10 billion.
In the United States, initial jobless claims were reported to have fallen to 444,000, indicating a steady improvement in the labor market. But repeated claims unexpectedly jumped by 111,000, which is the largest weekly increase since November.
With regards to EUR / USD, bullish traders managed to push the quote above 1.2199, so it is now trading at 1.2245. A lot will depend on this level as a break above it will most definitely set off a larger jump towards 1.2300 and 1.2350. But if bearish traders manage to get ahold of 1.2245, euro might collapse to 1.2199, and then to 1.2155.
GBP
Pound bounced back yesterday, after bullish traders built up long positions, seizing the opportunity that bearish traders did not show any activity around 1.4145.
But the recent statements from the Bank of England confused the market, because according to Deputy Governor Jon Cunliffe, the UK housing markets are unlikely to return to the pre-crisis levels even if tax breaks are canceled.
In recent reports, home prices exceeded many expectations, rising by 1.8% month-over-month, and by 6.7% year-on-year. Obviously, demand continues to outstrip supply, thereby pushing prices higher. Hence, on the latest data, the average price of real estate jumped to £ 333,564, which is the highest value ever recorded.
Industrial orders also soared, gaining 17% this May, which is also the highest rate recorded since December 2017.
All this led to pound hitting 1.4201, on which a lot depends today. Breaking above the level will result in a larger jump towards 1.4257 and 1.4310, while a consolidation below will lead in a collapse to 1.4143, and then to 1.4080.
