Poor US data, slow vaccine distribution, rising virus cases worsened the market sentiment and underpinned safe-haven currencies like the USD, and JPY.
EUR: $590bln rescue package
A $590bln financial emergency package was prepared to aid the European economy by EU finance ministers. It includes a 100bln-euro joint employment insurance fund, 200bln euros of liquidity to be facilitated to commercial organizations, and 240bln euros to support emergency spending programs of the European states.
Great news then…
Sure it is. However, formally, it is now only left to the EU country leaders to approve it. As you understand, that “only” is an abyss to leap over, given the current political and economic disagreements between the European states.
Primarily, because the virus, although biologically indiscriminative to societies, hit Southern Europe disproportionately harder than the North. Specifically, Spain, Italy, and France suffered most losses, while countries like the Netherlands, Germany or Sweden received much less damage.
On top of that, there are clear inter-state political and economic differences between the European countries, which have been there long before the virus came, but the hardened situation over the pandemic just made those differences more severe.
And finally, there are internal political struggles and fragmentation resulting in the fact that each opposing party or politician is trying to use the virus countermeasures to boost their own recognition and agenda.
Altogether, these factors lead to heavy doubt about the real level of the EU functionality and even integrity as an economic and political structure. Needless to say, if the European leaders manage to fail on this step, the EUR will lose much of its value. Otherwise, should they overcome their discords and approve the financial aid, EUR will be boosted in the long-term.
So what do I do?
You watch the levels. Currently, EUR/USD trades between the support of 1.0920 and the resistance of 1.0970. Activity on behalf of the US Fed and Trump’s positive “incursions” in the media with regards to the oil talks between OPEC+ countries give support to the USD, however, so far, EUR has been fighting that off. If next week brings some positive news on the progress over the mentioned financial plan, the resistance of 1.0970 should be crossed, and 1.1030 will be the next possible target in line with 200-MA. Otherwise, 50-MA and 100-MA will be there to greet the disappointed euro and walk it to the support of 1.0855. So watch the news and act accordingly.
The European Central Bank will publish the monetary policy statement with the interest rate decision on January 21, at 14:45 MT time.
Joe Biden is going to unveil a Covid-19 relief package of about $2 trillion. After this announcement, the 10-year Treasury yield rose, adding support for the USD.
The Canadian central bank will make a monetary policy report and announce interest rates on Wednesday, January 20, at 17:00 MT time. Also, the BOC press conference will be held later.
USD’s rally takes a pause, while riskier assets are modestly rising.
We are now past the middle of January, and this means that the largest US companies will report their earnings for the fourth quarter and many of them will provide the results of the entire 2020.