26.01.202116:08 Forex Analysis & Reviews: EURUSD and GBPUSD: The resignation of the Italian Prime Minister has put temporary pressure on the euro. The pound recovered after a mixed report on the labor market. The effectiveness of the COVID-19 vaccine raises questions

The British pound reacted in a rather strange way to today's data on the UK labor market, where the number of applications for unemployment benefits decreased and the overall unemployment rate even rose slightly. However, given the efforts made by the UK government to protect employment, it is not yet necessary to talk about the real picture and the situation with unemployment.

Exchange Rates 26.01.2021 analysis

One thing is for sure: the UK labor market is likely to continue to weaken further for the rest of this year as quarantine measures ease and the real picture emerges. The unemployment rate, now at 5%, is expected to jump to 6.5% by the end of 2021. According to the forecasts of some economists, if the introduction of the coronavirus vaccine goes well, the unemployment rate may return to 4% in 2023.

So, let's go through the numbers. Today's report shows that the UK's unemployment rate rose in November 2020 to its highest level in four years. This happened for an understandable reason, as the increase in the number of people infected with the coronavirus continues to increase, and government measures to contain COVID-19 harm economic activity. Thus, the unemployment rate was 5% in the last three months to November 2020, compared with 4.5% in the three months to August 2020. Such a high level was last observed in the summer of 2016.

Exchange Rates 26.01.2021 analysis

We were pleased with the data on the growth in the number of applications for unemployment benefits. The index rose by only 7,000, against the forecast of economists, who had expected a rise of 35,000 after a jump in the previous month of 38,100. In total, the number of people employed in the UK has fallen by 828,000 since February 2020, when the coronavirus epidemic began. The number of people suspended from work must decrease from its peak values, which were reached in April-May 2020.

Exchange Rates 26.01.2021 analysis

The growth of average earnings in November 2020 was also a pleasant surprise, which jumped by 3.6% over three months, against the economists' forecast of 2.9%, which will lead to increased inflationary pressure immediately after the lifting of quarantine measures and the easing of restrictions.

Immediately after the release of the above report, British Finance Minister Sunak said that he would review measures to support the economy in the context of COVID-19 in the framework of a meeting to be held in March to agree on the budget. He also added that the government is ready to take on further risks that companies will continue to face in connection with the economic lockdown. Last week, Sunak said that the employment support program, which ends in April this year, can be extended until the beginning of the summer of 2021.

Against this background, the British pound managed to regain its positions and broke through to the daily highs, clearly preparing to update them. As for the technical picture of the GBPUSD pair, buyers are still ready to open long positions, but for a more confident growth, a breakout of resistance in the area of the 37th figure is necessary. Only this will allow you to get to the annual maximum of 1.3745 and update it, reaching the levels of 1.3805 and 1.3870. If the bulls do not cope with the task today, the pressure on the pound may return, however, the pair is unlikely to go beyond the side channel. A break in the support of 1.3635 will lead to a larger downward correction in the area of the lows of 1.3580 and 1.3525.


The European currency sank against the US dollar at the beginning of the European session after rumors emerged that Prime Minister Giuseppe Conte was going to resign. This keeps open the possibility of early elections. However, against this background, the fall in risky assets was quite restrained, since even such a situation is likely to lead to the formation of a new coalition government.

Later, these rumors were confirmed. According to the Reuters news agency, Italian Prime Minister Giuseppe Conte has officially announced his resignation.

As for the US dollar, several things can give it a serious strengthening against risky assets. Concerns about the coronavirus and the unclear situation with the vaccine from Pfizer and Moderna, as well as uncertainty with Biden's proposed $ 1.9 trillion aid package, can seriously affect the positions of risky assets, which will return demand for the US dollar. If investors would realize that they were too optimistic at the beginning of this year, the euro may fall significantly against the US dollar.

Recently, reports of a slower spread of the vaccine in the EU, as well as doubts about its effectiveness, have curbed demand for risky assets, which limits their upward potential seen earlier this year.

Exchange Rates 26.01.2021 analysis

The head of the European Commission, Ursula von der Leyen, said today at the World Economic Forum in Davos that manufacturers of COVID-19 vaccines must keep their commitments to supply it. There is also talk about the effectiveness of the AstraZeneca coronavirus vaccine, which Germany wants to start using in its own country. The German Health Ministry said today that it could not confirm the rumors about the weak effectiveness of this drug. Everything will be clear on Friday when the final decision from the EMA will be made and approval from the EU will be received. Let me remind you that recently there are rumors that the effectiveness of the COVID-19 vaccine, when used in the age group of 65 years and older, is only 8%.

As for the technical picture of the EURUSD pair, it has not changed much. After updating the lows of yesterday, which occurred after the news of the resignation of the Italian Prime minister, the euro began to recover again. It will be possible to talk about the continuation of the bullish trend in risky assets with a confident breakdown of the resistance of 1.2190, which will open the way to the highs of 1.2230 and 1.2280. The bears have so far achieved a breakout of 1.2140, but they can very quickly miss this level if the data on the US economy turns out to be worse than economists' forecasts. The nearest support levels are seen in the area of 1.2110 and 1.2055.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Jakub Novak,
Analytical expert
InstaForex Group © 2007-2021
Benefit from analysts’ recommendations right now
Top up trading account
Open trading account

InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.

Can't speak right now?
Ask your question in the chat.