Talk about what the European Central Bank will do at its meeting this Thursday continues to bring the market back to its senses, especially the European currency, which managed to update the 15th figure at the beginning of the week, but now it has adjusted to the support area of 1.1350.
Almost everyone is confident that the ECB will expand its asset purchase program, but as for the key interest rate, it may remain unchanged. Only the deposit rate will be reduced by 10 bps. The expansion of the asset repurchase program can be doubled, from 20 billion euros per month to 40 billion euros. The terms of the TLTRO targeted long-term refinancing program can also be significantly eased.
As I noted above, the euro remains under pressure amid concerns about such programs, as well as due to the likely reduction in interest rates. However, the spread of the coronavirus will continue to maintain demand for risky assets and put pressure on the dollar and US bond yields.
On the other hand, traders ignore the good fundamental statistics for the eurozone countries, since, most likely, next month's reports will clearly be negative, since the coronavirus epidemic has seriously affected the European continent. Take at least one Italy, where the quarantine was extended until April 5 this year. All borders and educational institutions have been closed, and all sporting events have also been canceled.
I noted above that data on industrial production in France in January of this year were ignored by traders, even though production was restored after the end of a series of strikes that were related to the pension reform. According to a report by the statistics Agency Insee, industrial production increased by 1.2% in January compared to December, while economists had forecast an increase of 1.7%. Let me remind you that in December 2019, production fell by 2.5% at once. Growth was observed in all sectors. Thus, production in the manufacturing industry increased by 1.2%, and in construction by 1.8% at once. The energy sector received the least support – 0.9%.
In Italy, industrial production also turned out to be much larger than economists had predicted. However, as I noted above, all reports were prepared before the coronavirus outbreak and should not be taken seriously. According to a report by the statistics Agency Istat, industrial production in Italy increased by 3.7% in January this year compared to December. Economists had expected growth of only 2%. Let me remind you that in December, production fell by 2.6% at once.
As for the technical picture of the EURUSD pair, the support border has shifted to the 1.1338 area. A break in this range will increase the pressure on risky assets, which will lead to an update of the lows in the area of 1.1280 and 1.1240. The return of euro buyers to the market will be indicated by the breakout of the 1.1395 resistance, which will open a direct road to the week's highs in the area of 1.1460 and 1.1490.
GBPUSD
The British pound remains under pressure after a report on the weakening of retail sales, which is directly related to the February bad weather. According to the data, retail sales increased by only 0.1% in February compared to the same period last year, while there was an annual growth of 3.2% in February 2019.
Experts expected a jump in food sales amid the spread of the coronavirus, but there was no significant spike. Also, the improvement in consumer sentiment did not lead to an increase in sales.
Rishi Sunak, the British Finance Minister, is expected to announce a package of measures today that will address the consequences of the coronavirus epidemic, but this is unlikely to support the British pound, as it will lead to changes in budget rules that will keep the budget deficit for a longer period than previously expected.
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