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The euro is losing ground again after the rally it developed on Friday. Traders cheer the news on a successful test of the vaccine against COVID-19. Besides, the US is about to reopen gradually its economy as soon as the pandemic reaches its peak. The news boosted demand for risky assets. However, this information is not enough to reverse the market amid a stream of downbeat fundamentals. Analysts warn that the global economy could shrink 3.0% in 2020 from a year ago.
Discord inside the ECB Board discourages the euro bulls. Some of the ECB officials target the asset-buying program which means purchases of government and corporate bonds worth €750 billion. The program is intended for backing the EU countries. However, it entails the major problem as EU governments will incur heavy losses for the sake of rescuing ailing companies and keeping jobs. The criticism is also triggered by the ECB intention to buy mainly debts of Italy and Spain as they have suffered the most from the pandemic. This arouses discontent of more resilient countries like Germany and France as they cope with the trouble on their own. Experts say if the ECB carries on buying Italy's bonds, the regulator will eventually be the holder of over 50% of Italy's public debt. In this context, discord in the ECB ranks could evolve into a dangerous situation because the central bank could lose support from Germany and some other countries. To sum it up, growing risk-on mood could be short-lived and the euro's advance could be not as rapid as some one expects.
Friday's report on the eurozone's inflation revealed that it had lost momentum in March. This is a serious problem for the European regulator who has been holding interest rates at a zero level for long. The eurozone's CPI rose just 0.7% in annual terms and 0.5% month-on-month. No wonder, that a slump in oil prices is mainly to blame for lower inflation. A further fall in oil quotes will worsen the problem. Core CPI eased to 1.0% in March on a yearly basis from 1.2% in February.
The macroeconomic data from the US also disappointed investors. According to the Conference Board, a leading indicator tumbled in April. The index dropped 6.7% to 104.2, slightly better than the expected 7.2% fall. The reason behind the decline is the coronavirus-driven contraction in business activity.
Last week, Donald Trump stated that he is considering the scenario of restarting the national economy even amid the pandemic expansion. In response, almost 2,500 people gathered on Capitol hill in Washington to protest against lockdown measures. The protesters called on the government to cancel the directive to stay home on the back of the pandemic spread. The ongoing restrictions are valid until May 4. However, amid the soaring number of the coronavirus cases, the lockdown could be extended indefinitely. According to Johns Hopkins University, the number of the people infected in the US topped 735,000.
The US President announced that the US had launched the investigation into the COVID-19 outbreak to check evidence that China could have done this deliberately. The thing is that an employee in the biochemical laboratory in China's Wuhan could have picked the virus from a bat and afterwards could have contaminated local people.
Now let's discuss the technical picture of EUR/USD. Despite a surge in volatility on Friday, the pair has been still trading sideways. At present, sellers of risky assets are betting on the price retracement to the lowest level of the last week that 1.0814. If broken, the euro will come under pressure, so that the pair will have the door open to April's lows of 1.0770. All moves of the EUR/USD buyers especially during the New York trade could test resistance at 1.0905. This will allow the pair to rebound to the highs of the last week that is about 1.0995.
GBPUSD
Last Friday, UK Chancellor of the Exchequer Rishi Sunak said that the job retention scheme would be extended for one month longer. The program will remain in force until late July that will enable employers to pay out 80% of wages plus vacation subsidies through the government's financial aid. Besides, he does not rule out fine-tuning the program if necessary. However, future decisions will be taken alongside other measures against the coronavirus. Such news is bearish for the pound sterling in the short term.
From the technical viewpoint on GBP/USD, the escape from the trading range of 1.2410-1.2515 will provide the clue to a further direction of the pair. If resistance is broken, the pair could reach as high as April's strongest levels of 1.2580 and 1.2645. On the other hand, if the bears manage to test support of 1.2405, the pressure on the sterling will intensify greatly, thus pushing the pair down to such lows as 1.2360 and 1.2290.
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