The US dollar strengthened against the euro and the British pound on Wednesday in the first half of the day, as investors paid attention to the comments of representatives of the Federal Reserve System, as well as statements by representatives of the European Central Bank on the prospects for monetary stimulus. Francois Villeroy de Galhau, a member of the ECB’s Governing Council, said that the European regulator will maintain its previous stance on monetary policy for as long as necessary, which dashed some speculators’ hopes for the more active recovery of the euro after its rapid fall earlier this year.
American traders also drew attention to the statements of several representatives of the Federal Reserve System, who categorically rejected the possibility of reducing bond purchases in the near future. The president of the Federal Reserve Bank of St. Louis, James Bullard, said that overcoming the pandemic remains a priority. Boston Fed Chairman Eric Rosengren agreed with him. This eased fears that the Fed could repeat a trick it already did in 2013 when the unexpected rollback of stimulus policy led to a surge in volatility in financial markets.
Also, do not forget that US President-elect Joe Biden plans to announce tomorrow his next program of financial support for the economy, which will be filled with new tax breaks, one-time benefits, and other conditions for helping businesses and companies in the trillions of US dollars. This factor is not in favor of the US dollar. Therefore, it is so difficult for the EURUSD pair to break below the level of 1.2135, which is now the focus.
As for the technical picture of the EURUSD pair, the sharp decline of the trading instrument from the level of 1.2225 indicates the continuation of trade in the downward channel. If the bulls give way today and the range of 1.2180 and the market closes below this level, you can count on a re-return of risky assets to the lows of the month in the area of 1.2130 and their update, which will open a direct opportunity for the euro to fall in the area of 1.2080 and 1.2010. It will be possible to talk about a reversal of the downward trend only if a bad report on inflation in the United States leads to a powerful bullish impulse and a breakdown of the maximum of 1.2225.
As for today’s figures, in the first half of the day, the report on wholesale prices in Germany in December of this year did not have a significant impact on the market, although prices fell at the slowest pace in ten months. According to Destatis, in December 2020, wholesale prices fell by 1.2% year-on-year after falling by 1.7% a month earlier. It was the slowest drop in prices since February. Every month, wholesale price growth accelerated by 0.6% against 0.1% in November. As for wholesale prices for petroleum products, they fell by 13.6% in December.
More interesting from the point of view of the prospects for the eurozone were the data from Eurostat on the growth of industrial production. And although the data were published as early as November 2020, in general, we can say for sure that the industry suffered the least from the coronavirus pandemic, or I would like to believe it. Growth accelerated in November thanks to a steady increase in the production of industrial goods. Total industrial output rose 2.5% month-on-month, after rising 2.3% in October. Economists had expected an increase of only 0.2%.
On an annual basis, the decline in industrial production slowed to 0.6% from 3.5% in October.
Industrial production grew the most in Ireland, where the indicator jumped by 52.8% at once, while the maximum decline occurred in Portugal, Belgium, and Croatia. In Italy, industrial production also sank by 1.4%. It is expected that industrial production has stabilized by the end of this year, and such rapid figures can hardly be expected in the 1st quarter of 2021.
Today, the French Central Bank released a forecast that the French economy contracted in the last quarter of 2020. The easing of COVID-19 containment measures in December 2020 did not significantly affect the final figure. The bank said that in the 4th quarter, the economy contracted by 4%, bringing the overall decline for the whole of 2020 to 9%. Let me remind you that in the third quarter, after the lifting of quarantine measures, GDP grew by 18.7% at once, but this, of course, was not enough to cover the drawdowns for the 1st and 2nd quarters. The Central Bank also noted that in December last year, construction activity was stable, and the service sector significantly improved after the opening of stores. Growth was also recorded in the industry.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.