The euro continued to decline against the US dollar, and the pound sterling remained in place after the publication of several fundamental data, which did not differ much from the forecasts of economists. The euro continued to fall during the European session today, so traders once again returned to the topic of the prospect of accepting the $1.9 trillion stimulus package proposed by US President Joe Biden.
But before talking about the numbers, I would like to draw your attention to today's statements by the new Italian Prime Minister Mario Draghi. During an interview as prime minister, Draghi said that he shares the pain of those who suffer from the economic decline, and therefore the Italian government is determined to carry out the necessary reforms. It concerns the tax system and public administration. Draghi also said that Italy should improve the efficiency of the judicial system and enter into a dialogue with Russia. Another direction will be to demonstrate the unity of political parties. Draghi also did not disregard additional efforts to combat the coronavirus pandemic, promising a faster spread of the Covid-19 vaccine.
Let me remind you that Draghi's main task is to achieve a political consensus in Italy after another political crisis led to the resignation of the prime minister. Many investors expect that Mario Draghi will correctly manage the amount of €209 billion that he can receive from the European Stabilization Fund. Recently, Italy has been very often caught in the lens of economists, as the debt obligations of this country are becoming more attractive to investors. The spread between Italian and German government debt is expected to narrow to 75 basis points soon, along with a flatter yield curve. Lower political uncertainty and support from the ECB create acceptable conditions for buying Italian government debt at the moment.
German Health Minister Spahn said on Wednesday that the incidence is declining, despite the spread of a new strain of coronavirus. This is good news for the economy, which continues to experience a partial economic lockdown due to the pandemic. According to the minister: now the infection with the new strain is more than 20%, and the next 10 million doses of the vaccine will be delivered to Germany next week. Following the coordination of the European Commission's actions with pharmaceutical companies, the pace of vaccination has significantly accelerated. The reaction to the AstraZeneca vaccine also showed a fairly good result, which allows its use in the future. The European Commission has already announced that it has reached an agreement for a second contract with the pharmaceutical giant Moderna for the additional supply of another 300 million doses of coronavirus vaccine to the EU. By the way, part of the vaccine will be delivered free of charge to less prosperous EU countries.
As for the technical picture of the EUR/USD pair, the euro continued to lose ground against the US dollar, breaking below the level of 1.2085 and gradually falling to the area of 1.2040. A breakout of this range will open a direct path to the base of the 20th figure, just below which support at 1.1960 is visible. The reversal of the bullish trend in risky assets will clearly be a problem for speculative traders who expect the EUR/USD to continue to strengthen in the short term. It will be possible to talk about the recovery of the bullish market sentiment only after the pair returns above the level of 1.2085.
GBP/USD
It is worth saying that the GBP/USD pair received support immediately after the release of reports that the UK consumer price index rose in January 2021 above economists' forecasts. A report from the Office for National Statistics (ONS) said: UK consumer prices rose by 0.7% year-on-year in January 2021, after rising by 0.6% a month earlier. And while annual UK inflation rose in January, it remained well below the Bank of England's 2% target
On a monthly basis, inflation fell 0.2% in January after rising 0.3% in December 2020. The data turned out to be better than economists' forecasts. Disruptions in trade due to Brexit could have contributed to the rise in food prices, which led to the strengthening of annual inflation, among other things. Supply disruptions will continue to seriously affect prices, leading to significant fluctuations in the indicator. Restaurants and hotels also put upward pressure on inflation.
As for the technical picture of the GBP/USD pair, much will depend on whether the bears will be able to gain a foothold at the end of the day below the low of 1.3840 or not. If so, we can expect a further decline in the trading instrument to the support area of 1.3820 and 1.3770, where it will again be possible to observe more active actions of pound buyers. It will be possible to talk about the recovery of the bullish market sentiment only if they go beyond the base of the 39th figure. In this case, you can again wait for an attempt to test the area of 1.3960, followed by an exit to the maximum of the 40th figure.
