ECB eases, Brexit still at impasse

EUR/USD is slightly lower in the Friday session. Currently, EUR/USD is trading at 1.2113, down 0.19% on the day.

ECB boost PEPP, notes high euro

The ECB held its final policy meeting of the year on Thursday and the meeting was a live one. The central bank raised its Pandemic Emergency Purchase Programme (PEPP) by EUR 500 billion, to a total of EUR 1.85 trillion. The PEPP, which is the ECB’s primary tool in dealing with the Covid pandemic, was extended by nine months to March 2021. As well, the central bank extended the Targeted Longer-Term Refinancing Operations (TLTRO) by one year to June 2022. This scheme is intended to stimulate bank lending to the economy.

The additional easing by the ECB did not impede the upswing of the pesky euro, which added gains of 0.50% on Thursday. Bank members had telegraphed the ECB’s intention well ahead of time, so the markets were not at all surprised by the additional easing measures. This allowed the euro to join the bandwagon, as the US dollar had another miserable day. The ECB rate statement took note of the sharp appreciation of the euro, which could hamper the export sector at a time when global growth remains weak due to the Covid-19 pandemic. As well, sharp movements in the exchange rates can affect inflation forecasts. The rate statement said that policymakers will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.” Currently, inflation is at very lower levels, and this was reiterated on Friday, as German CPI fell by 0.8% in November, its sharpest decline in 12 months.

EU leaders talk Brexit

The Brexit talks remain at an impasse, and there is growing easing that the sides may not reach a deal before the UK withdraws from the EU on December 31st. A high-level meeting this week between Prime Minister Johnson and EU Commission President Ursula von der Leyen failed to break the logjam, prompting Johnson to state that there was a “strong possibility” of a no-deal outcome. EU leaders are wrapping up a two-day summit in Brussels, but it is unlikely they will have any dramatic announcements to make on the Brexit front. The specter of a no-deal would likely send the British pound tumbling, and could also trigger more modest losses for the euro.

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EUR/USD Technical

• EUR/USD is facing resistance at 1.2175. Close by, there is resistance at 1.2209
• There is weak support at 1.2092, followed by a support line at 1.2043
• The 10-day MA line remains relevant. Currently, it is situated slightly below the pair

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