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#1 21-01-2021 08:56:25

johnedward
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EUR/USD: Biden, day 1

EUR/USD: Biden, day 1


The 20-day moving average (in dark blue) continued its bearish move on the pair in a currency market fully focused on the inauguration of Joe Biden, who officially began his term at the head of the United States yesterday.

The markets were attentive during the inaugural speech to new clues on his political strategy. Even if his course is already well known. He has already unveiled a package of $2 trillion  in total, including $415 billion to strengthen the fight and vaccination against the virus, about $1 trillion in direct aid to households and $440 billion for small businesses. The question of the consequences in terms of inflation of this plan (9% of the GDP all the same!), as well as the continuation of the pandemic in the most bereaved country of the planet, will remain under surveillance.

Nevertheless, it is unlikely that this plan will be adopted "as it stands", according to J Plassard (Mirabaud), who backs up his statement: "The proposal is encountering obstacles at the Congress. Biden tansition officials and Congressional democrats have indicated that they hope to adopt the proposal through a regular ordinance, not through the budget reconciliation process. That means it would require 60 votes in the Senate, and therefore the support of at least 10 Republicans."

In the immediate term, attention was focused on the hearing before the Senate of Mrs. J. Yellen. Known as a "dove" when she was president of the American central bank, before Donald Trump preferred Jerome Powell to her, the economist unsurprisingly assumes a voluntarist bias in the budgetary field. There she presented her strategy, affirming her strategy for rebuilding the economy beyond even the necessary budgetary aspects, before Parliamentarians who must endorse her appointment as head of the Treasury Secretariat. The former President of the Fed (from March 2014 to March 2018) should replace Steven Mnuchin in this strategic position in the administration.

"This will help to implement an infrastructure programme that President Trump talked about during his term, but was unable to deliver," predicts Rendeep Somel, a fund manager on the equity team at M&G Investments. "This will also allow us to target spending in 'green' sectors, including increasing the use of renewable energy for electricity generation - with the aim of achieving carbon-free energy by 2034 - and upgrading three million buildings to the highest standards of energy efficiency."

But the executive's first task will be health! Biden has a target of 100 million vaccines during the first 100 days of its term. The United States remains to this day, as a reminder, the world's most bereaved country in the coronavirus pandemic. The 390,000 death mark has just been sadly exceeded.

The health situation, which is also serious on this side of the Atlantic, has led the main economic powerhouses in the Euro Zone to tighten their restrictive measures, which should force the European Central Bank, which conducts a meeting of its Board of Governors today, to durably reaffirm its accommodating course.

"This meeting should not a priori bring big surprises" says Emmanuel Auboyneau (Amplegest). "However, in comparison with the last meeting, we note that the health situation, far from improving, is tending to deteriorate in Europe, with the appearance of more contagious variants and the relatively slow pace of vaccination campaigns. The European Central Bank (ECB) should therefore reiterate a message of great caution on the economy and insist on its unfailing support. The 1,849 billion purchase programme voted at the last meeting could finally be used in its near totality, although some ECB members had expressed reluctance on this point. The horizon of March 2022 also gives us good visibility. Mrs. Lagarde should also express herself on the strength of the euro and perhaps set a level beyond which an intervention would be possible (a new rate cut?). Inflation would not be a brake on such a movement, even if the 5-year outlook has recently been slightly revised upwards".

In statistical terms, on Tuesday, the "ZEW", as it is more commonly known in the trading rooms, jumped this month to 61.9, well above expectations. Yesterday, the various consumer price indices in the Euro zone did not deviate one iota from the consensus. In particular, in data corrected for volatile elements (food, energy, alcohol and tobacco), prices, for the December law, rose at an annual rate of 0.2%, according to the public.

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