18.01.202112:12 Forex Analysis & Reviews: EUR/USD: Demand for the euro is expected to drop this week, mainly due to the upcoming ECB meeting and Joe Biden's inauguration on January 20.

The sharp rise of COVID-19 infections last week may force many central banks to reconsider their stance on monetary policy. However, changes will occur only in the second half of this year.

In any case, many already expect that economies will shrink this 1st quarter, especially amid ongoing lockdowns. Aside from that, there is a high chance that central banks will keep interest rates at the current levels, without resorting to further stimulating the economy.

Last week, ECB President Christine Lagarde announced a rather positive assessment of the European economy. She said the forecasts that the bank published last December, along with the current data, suggest a more active GDP growth rate. She also highlighted the reduction in uncertainty following the US elections and the Brexit trade deal, as well as the more positive economic outlook amid the beginning of COVID-19 vaccinations in the country.

Because of this, many believe that the ECB will not reinforce its monetary stimulus to get out of the crisis. According to them, the ongoing programs are quite enough for the EU economy.

With regards to economic reports, a rather poor macroeconomic indicators came out from the US, however, the position of the dollar in the market is still quite high, which is against all logic. It seems that traders are focusing more on political events and how they can affect the economy in the future, so the negative data caused by the pandemic is leveled by the trillions of dollars that will continue to be pumped into the US economy.

According to the report, US retail sales were down 0.7% in December, while economists had expected a decline of only 0.2%. This decrease proves the serious impact of lockdowns to the US economy.

Consumer sentiment also declined due to the pandemic, since many customers have become less confident about their future. Thus, the index reflecting the degree of household confidence fell to 79.2 points this January, while analysts had expected a drop to 80 points. Given that the figure is still preliminary and does not include Joe Biden's new co-benefits program, the final figure may be different.

Anyhow, the index of current economic conditions also fell to 87.7 this January, while the index of economic expectations dropped from 74.6 points to 73.8 points.

But in terms of industrial production, everything is in order. The report for December showed growth well above forecasts, that is, an increase of 1.6% as compared to the expected 0.5%.

Industrial capacity utilization also jumped to 74.5% in December.

Aside from that, US inventories also rose in November, albeit marginal. According to the report published by the US Department of Commerce, inventories of enterprises increased in line with estimates of economists, so, in November last year, they increased by 0.5% compared to October, where the growth was 0.8%. Economists, meanwhile, expected the figure to rise by only 0.5%.

As for the EU economy, the Central Bank of Italy said it will grow by 3.5% this year, and then increase by 3.8% next year. Then, it will slow to 2.3% in 2023.

With regards to EUR/USD, there is a high chance that the decline will continue, at least until Wednesday, when Joe Biden is inaugurated. Big riots are expected in the US, so investors will not rush to buy risky assets against this background. To add to that, the upcoming meeting of the European Central Bank is a deterrent for euro buyers. In this regard, a break below 1.2065 will only increase pressure on EUR/USD, which could trigger a sharp drop towards 1.2020 and 1.1980. But if the quote returns to 1.2140, the euro may rise to 1.2220 or 1.2280, and then to 1.2350.