Euro steady as ECB puts on brave face

The euro continues to have an uneventful week. Currently, EUR/USD is trading at 1.2147, up 0.34% on the day.

Lagarde says that GDP in Q4 likely contracted

The ECB held its monthly policy meeting earlier on Thursday. With the resurgence of Covid-19 hanging in the air, investors were not expecting any cheerful news from the central bank and may have been hoping that the ECB would not press any panic buttons. Given that EUR/USD has remained in green territory on Thursday, it would be fair to say that ECB President Christine Lagarde earned a passing grade in her message to the markets.

Lagarde could not escape the grim economic situation in Europe, and duly noted that the eurozone economy likely contracted in Q4 (actual GDP data won’t be published until mid-February). The upshot of this is that the eurozone is likely headed towards a double-dip recession, with a decline expected for the first quarter of 2021. Lagarde acknowledged that the risks to the economy were tilted to the downside, but she also listed some positive developments – the rollout of Covid vaccines, the approval of the EU pandemic recovery fund and stronger manufacturing numbers. She also reminded her listeners that the ECB has projected that the eurozone’s economy will grow by 3.9% in 2021.

Given the difficult economic conditions, it’s no surprise that inflation has been in the doldrums. In December, eurozone annual inflation was -0.3% for the fourth straight month. Just a year ago, before the corona crisis, inflation was at 1.3 percent. Covid-19 has also taken a heavy toll on the services sector, which is in contraction in the eurozone as well as Germany, the largest economy in the bloc.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.2150. Above, there is resistance at 1.2195
• There is support at 1.2069, followed by support at 1.2033
• The 50-MA line remains relevant, just below the pair at 1.2138. A close below this line would be a technical signal

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