EURUSD
Yesterday, the European Central Bank announced in its interest rate decision that the three key interest rates will remain unchanged: the main refinancing rate remains at 0%; the deposit mechanism rate remains at -0.5%; and the marginal lending rate remains at 0.25%. The central bank said it will maintain interest rates at current or lower levels until inflation is sufficiently close to the 2% level (the current Euro zone inflation rate is only recorded at 0.1%). In addition, the European Central Bank has also expanded its emergency anti-epidemic debt purchase plan (PEPP) to 600 billion euros, which is larger than the market expectation of 500 billion euros. The total debt purchase plan of 1.35 trillion euros will be extended at least until June 2021 until the European Central Bank judges that the epidemic crisis phase has ended. During this period, the European Central Bank will make a net asset purchase under PEPP and extend the reinvestment of the principal payment of the maturity bonds purchased through the plan in full. Not only this, the European Central Bank also announced that it will continue to increase the net purchases under the asset purchase plan (APP) at a rate of 20 billion euros/month, and purchases with a temporary amount of 120 billion euros by the end of 2020. The plan will end before the European Central Bank begins to raise key interest rates. The European Central Bank announced that the monetary policy decision to substantially expand the scale of debt purchases effectively boosted the euro.
On the other hand, the European Central Bank is basically pessimistic about the economic and inflation expectations of the Eurozone this year. In terms of GDP growth, the European Central Bank expects the GDP of the euro zone to shrink by 8.7% in 2020, which was previously expected to be 0.8%; from the perspective of inflation expectations, the central bank expects the inflation rate of the Eurozone to record 0.3% in 2020, which was previously expected to be 1.1 %. In addition, the European Central Bank President Lagarde also said at a press conference that the sluggish job market and the decline in consumption led to an unprecedented contraction in economic activity in the second quarter of the euro area. Although Lagarde believes that the European economy will rebound in the third quarter, there is still a high degree of uncertainty in the speed and scale of recovery. In addition to the Eurozone countries need to maintain a loose policy stance, Lagarde also urged the EU to take fiscal stimulus measures to continue to support the euro zone economy.
From a technical analysis point of view, the daily chart shows that EUR/USD has recorded an increase of 8 consecutive trading days since May 26, and its weekly increase has reached 4%. The current exchange rate closed above the 78.6 gold level. The 10-day moving average (pink) and the medium- and long-term moving average formed a golden fork and turned strongly upward. The 50-day moving average (purple) also started to trend towards the 100-day moving average (yellow). MACD double moving average and kinetic energy bar continued to record upward. On the other hand, the relative strength index (RSI) and stochastic indicators (Stochastic) are in the overbought area.
From the 1 hour chart point of view, the EURUSD after a strong break up the channel resistance and 1.1310 resistance, the current dollar bull momentum has slowed down slightly and closed at 10-day moving average below (pink). MACD presents a dead fork. Judging from the recent trend, the 78.6 gold level is the main watershed.
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L arince Zhang
Market analyst
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