The European Central Bank has announced that it has almost doubled its quantitative easing program, increasing it by another 600 billion euros, thereby expanding to 1.350 billion euros. After some deliberation, the euro then jumped with renewed vigor. And it is not strange, but in many ways, this is the reaction of investors to the ECB's actions. More precisely, not even actions, but words. The fact is that it is no secret to anyone that Europe is steadily slipping into deflation, which implies not just an increase in the infusion of funds into the economy, but also a reduction in interest rates. ECB President Christine Lagarde did not say a word about the risks of deflation during her press conference. And we still cannot say whether this issue was discussed during the meeting itself. We can only learn more when the minutes of the ECB meeting is released. Although Lagarde once again uttered the familiar phrase that interest rates will remain at current or lower levels, until inflation reaches the target level of 2.0%. But then again, not a single word about lowering consumer prices. Indeed, this is more like a hint that the ECB does not plan to reduce interest rates. This precisely has become the main reason for consolidating the euro. After all, seeing the inflationary dynamics, investors have no choice but to expect the possibility of lower interest rates. Maybe not now, but at least in perspective. But it turns out that everything is not so bad. At least, this conclusion can be drawn from Lagarde's words.
It is clear that the ECB meeting overshadowed all other events. At least no one was looking at European statistics. And it is quite peculiar. On the one hand, the business activity index in the construction industry increased from 15.1 to 39.5, which in general did not surprise anyone, since it is growing after other indices. The reasons for growth are exactly the same. After all, even though we have to admit a catastrophic decline in consumer activity, we have now begun to allow at least work. Not like a month ago, when all the construction sites just stood idle. So the increase in the index is associated exclusively with the gradual removal of restrictions previously imposed due to the coronavirus epidemic. But the pace of decline in retail sales accelerated from -8.8% to -19.6%. This is of course a little better than the forecast of -24.0%, but it does not get any easier. The recession is still just unprecedented. And it is noteworthy that data on retail sales were published shortly before the announcement of the results of the ECB meeting. So such a significant decline in sales, somewhat implied that Lagarde might at least hint at the possibility of a further reduction in interest rates.
Retail Sales (Europe):
However, an additional factor in strengthening the euro was the data on applications for unemployment benefits in the United States. First of all, we are talking about repeated applications, the number of which began to grow again. The fact is that the number of repeated applications grew for ten consecutive weeks, which indicated an increase in the duration of unemployment and a constantly worsening situation on the labor market. That is, people simply could not find work. Last week there was a slight decline in the number of repeated applications, which was immediately perceived as a hint that the situation is beginning to improve gradually. However, all hopes went to waste, as the number of repeated applications increased again to 21,487,000. But the number of initial applications decreased to 2,284,000. Although their number is still more than ten times the normal weekly value.
Repeated Unemployment Claims (United States):
Of course, we can arbitrarily say that the euro is heavily overbought and urgently needs at least a local correction, but apparently we will have to wait. The United States Department of Labor will publish a report today, and forecasts of its content are more likely to be horrifying. The unemployment rate, which is already at a record high of 14.7%, can rise to a fantastic mark of 19.5%. Although we do not have reliable data on what was the extent of unemployment during the Great Depression, since such statistics were not kept back then, we can only try to compare it with the current situation. In addition, the number of jobs should be reduced by another 8,870,000. At the same time, the number of jobs was already reduced by 21,407,000 over the previous two months. While under normal conditions, the number of jobs grew by around 200,000 per month. So the situation is really difficult, and signs of at least some improvements that everyone has recently begun to cling to are just an illusion.
Unemployment Rate (United States):
From the point of view of technical analysis, one can see a rapid upward movement, during which the quote managed to overcome a number of price levels, forming a flat, and also call market tacts into question.
Regarding the current movement, it is worth highlighting the impulse candle during which the quote managed to go above the 1.1350 mark, which means that in three weeks the quote has passed more than 500 points.
In terms of a general review of the trading chart, the daily period, a similarity is recorded in the dynamics of fluctuations at the beginning of the year, where an upward movement was built at a similar rate.
It can be assumed that we are dealing with an inertial move against a background of high speculative interest, where we should not exclude the convergence of prices with a local high on March 9, which reflects the 1.1440/1.1500 area. It is worth considering that a rapid upward move will lead to overheating long positions, and as a result a technical correction will occur.
From the point of view of a comprehensive indicator analysis, we see that the indicators of technical instruments have a constant upward trend, signaling a purchase.
*Prezentowana analiza rynku ma charakter informacyjny i nie jest przewodnikiem po transakcji.
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