Euro broke through the resistance levels yesterday, thanks to low trading volume and absence of macroeconomic reports. And today, this bullish move may continue if statistics on the Euro area turn out much better than projected. Meanwhile, hints of an earlier-than-scheduled policy change may push the pound up.
Another important event is the talks on the global tax deal, which, according to the Organization for Economic Cooperation and Development (OECD) may not come until October.
OECD Secretary General Angel Gurria said the "180-degree change" in the position of the US accelerated the negotiations, but some countries, including the US, need to change their laws before the issue is fully resolved. Hence, final decisions may not come until October, when another G-20 meeting will take place. But given the fact that Gurria is almost 100% confident that a deal will be concluded, it is obvious that the member countries are serious in implementing a joint tax change.
Another important issue is the ongoing discussions on the patent of COVID-19 vaccines. Just recently, US Trade Representative Katherine Tai made a loud announcement that the US will support a temporary waiver of WTO intellectual property rules for the vaccines. Meanwhile, other countries such as the European Union, Canada and Switzerland, continue to oppose the move, claiming that allowing such could seriously harm the companies that produce the vaccines.
With regards to macro statistics, the European Central Bank reported that money supply in the Euro area grew at a slower pace in April, as did private sector lending. The M3 money supply rose 9.2% year-on-year, while overall lending climbed 7.7%. Apparently, loans in the public sector increased by 18%, while loans in the private sector rose by only 4.0%.
Meanwhile, data on inflation exceeded expectations. Consumer prices in Italy jumped 1.3% year-on-year, instead of only 1.0%, which analysts projected. But core inflation remained unchanged at 0.3%.
As for Germany, CPI rose 2.4% year-on-year, which is in line with the forecasts. It is also the highest record since 2018.
With headline inflation rising, the ECB's attempts to avoid talking about cutting back on its bond buying program will be difficult. Nevertheless, it has time to properly prepare for serious monetary policy adjustments, as it is unlikely that the central bank will make decisive actions before this fall. It will take several months before authorities will get a real idea of whether inflation will get out of control, or if everything will go according to plan.
In the US, reports on manufacturing PMI, non-farm payroll and jobless claims will be released this week. US President Joe Biden will also detail his $ 6 trillion budget for next year, which proposes spending on infrastructure, education and other initiatives. But the plan is unlikely to win bipartisan support in the Senate, as Republicans are highly critical of Biden's proposals.
Going back to the euro, a lot depends on 1.2220 today because a break above it will surely set off a jump towards 1.2260 and 1.2350. Meanwhile, a drop below the level will result in a collapse to 1.2180, and then a further plunge to 1.2130 and 1.2080.
GBP
Pound is on its way to hitting new all-time highs, thanks to talks of an earlier-than-scheduled policy change. Last week, some members of the Bank of England hinted that there may be changes in the bond purchase program, and if Andrew Bailey really announces such a decision today, demand for pound will surely soar.
But a lot will still depend on 1.4215 as a jump above it will lead to a larger rise to 1.4265 and 1.4310. Accordingly, a drop below the level will result in a plunge towards 1.4215, and then to 1.4169.
