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01.12.202015:20 Forex Analysis & Reviews: EURUSD and GBPUSD: The pound retreats from highs after statements by the President of the European Commission. One optimism for euro buyers is clearly not enough to break the 20th figure

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The European currency is again trying to enlist the support of large buyers of risky assets after the release of good reports indicating that manufacturing activity in the Eurozone in November this year remains at a fairly good level. But judging by the way traders behave just above the level of 1.1970, it is not necessary to say that they will soon be able to achieve a breakdown of the psychological mark in the area of the 20th figure.

Exchange Rates 01.12.2020 analysis

But before we talk about the numbers, I would like to draw attention to today's report by J. P. Morgan, which focuses on increasing the emergency asset purchase program by the European Central Bank. This factor is the main problem, which is why the European currency is below the 1.2000 level. No one doubts that the program will be expanded for a long time, but it is another matter how much it will be increased in volume and in the time interval. J. P. Morgan believes that the new PEPP program will be implemented in two stages.

At its next meeting this month, the last for this year, the European Central Bank may increase the program by 500 billion euros. The next expansion may occur as early as mid-2021 when the consequences of the next wave of the coronavirus pandemic will be understood, and problems with it will be solved with the help of a vaccine. It is expected that another 250 billion euros will be allocated through PEPP. All programs will continue to operate in 2022. Therefore, no increase in interest rates until the beginning of 2023 is even out of the question. By that time, perhaps, inflation will come to order, which is gradually moving to a deflationary level at the end of this year in the Eurozone.

Under the new program, the Central Bank is expected to buy bonds for an average of 100 billion euros per month by the end of 2021.

As noted above, inflationary pressures in the Eurozone remain subdued, which creates several problems for the European Central Bank. Since August, inflation has continued to decline, which is a serious deflationary sign. November was no exception. According to today's data, the Eurozone consumer price index fell by 0.3% in November 2020, while economists had expected inflation to fall by only 0.1%.

Exchange Rates 01.12.2020 analysis

As for manufacturing activity, which data supported the euro, Italy and Germany showed clear resistance to the second wave of coronavirus, although they lost some momentum. A report from IHS Markit indicates that in November this year, the Italian manufacturing sector continued to recover, but at a less significant pace. The tightening of quarantine measures has affected activity. The purchasing managers' index (PMI) for the manufacturing sector in November 2020 was at 51.5 points against 53.8 points in October.

In Germany, the same indicator remained almost unchanged at 57.8 in November against 57.9 in October this year, which is a stunning result. This will help to smooth out the consequences of a serious reduction in the service sector during the winter period.

Spain was less fortunate. Activity in the manufacturing sector began to decline. A report from research firm IHS Markit said the purchasing managers' index for the manufacturing sector in the country fell to 49.8 points in November, indicating a contraction in the activity. A sharp decline in demand has put pressure on orders in the manufacturing sector.

For the Eurozone as a whole, the index was revised to 53.8 from 54.8 in October, indicating fairly strong momentum. Let me remind you that a value above 50 indicates an increase in activity compared to the previous month. Economists had expected the final index for November to match the preliminary estimate.

Exchange Rates 01.12.2020 analysis

Today, another indicator was released that indicated that things are much better in Germany than expected. Although the labor market raises questions, the support measures provided by the authorities allow us to keep the situation under control. According to the data, even with the second nationwide lockdown, the number of unemployed in Germany fell by 39,000. Economists had forecast a 10,000 increase in the number of unemployed. The unemployment rate fell to 6.1% from 6.2%, with economists predicting that it remains unchanged.

Today's report of the Organization for Economic Cooperation and Development did not significantly affect the mood of buyers of risky assets, as everyone expected that against the background of the second wave of the coronavirus pandemic, reports will be revised for the worse.

For example, the OECD lowered its forecast for global GDP growth in 2021 to 4.2% from 5%, and this was done in connection with the economic lockdown during the second wave of the pandemic, which is still active in many countries of the Eurozone. As for the spread across countries, the OECD lowered its forecast for US GDP growth in 2021 to 3.2% from 4%, and the forecast for Eurozone GDP growth to 3.6% from 5.1%. China remains the growth leader. It still forecasts China's GDP growth at 8%. The report also indicates that the governments of developed countries should not rush to complete programs to support the economy. But as we can see, no one is going to do this yet.

As for the technical picture of the EURUSD pair, the bulls are trying in every possible way to return to the highs of yesterday, but it is not easy to do this. Fixing above 1.1965 has not yet been possible. Only it will open a direct road to the maximum of this month, from the breakdown of which the further direction of the pair to the area of 1.2055 and 1.2090 will depend. If the pressure on risky assets persists, the breakout of the support of 1.1920 will quickly push the trading instrument to the lows of 1.1880 and 1.1840.

GBPUSD

The pound actively reacts to any news related to the Brexit trade agreement, and any statements made by individuals related to these negotiations. For example, today the British dollar fell after statements by the President of the European Commission, Ursula von der Leyen, who noted that trade negotiations between the UK and the European Union are not easy and are very difficult. She expressed optimism that positive results could be obtained in the next few days, but no more specifics about the progress of the negotiations were announced, which disappointed traders.

Exchange Rates 01.12.2020 analysis

The mayor of London said today that there are still several important issues beyond fishing zones that need to be addressed in relation to the so-called "equal playing field". During his speech, William Russell noted that any progress in trade negotiations will have a positive impact on trade relations, but apart from truck drivers and owners of fishing trawlers, we should not forget about the financial services sector, which should come to the fore after reaching an agreement on key issues.

But as noted above, in the absence of positive news, more and more traders are willing to take risks and wait for the last moment. Another unsuccessful attempt by the bulls to break above the 34th figure indicates a selective approach on the part of major players and probing the market for each other. Now, the bulls' target is to protect the support of 1.3295, which the trading instrument is moving towards. Bears will try their best to break through this range, which will open a direct path for them to the lows of 1.3250 and 1.3190.

Jakub Novak
Analytical expert of InstaForex
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