Euro yawns as ECB increases recovery fund

EUR/USD continues to have a quiet week. Currently, EUR/USD is trading at 1.2114, up 0.27% on the day.

Sober ECB increases Covid recovery fund

At its final policy meeting of 2020, the ECB implemented additional easing in order to bolster the eurozone economy. As widely expected, 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 ECB extended the Targeted Longer-Term Refinancing Operations (TLTRO) by one year to June 2022. This scheme is intended to stimulate bank lending to its customers. The bank did not make any changes to its main interest rate, which remains at 0.00%.

The eurozone has shown some indications of recovery, such as Manufacturing PMIs which have indicated expansion. Still, with a resurgence of Covid across much of the bloc, there are fears that the fourth-quarter growth could be negative. The ECB was direct and clear about its concerns, saying in the rate statement that “uncertainty remains high, including with regard to the dynamics of the pandemic”. Bank members also noted the sharp appreciation of the euro, saying “we will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.” The ECB’s somber message did not shake up the euro, as the easing moves were widely expected.

Aside from the ECB decision, the only event out of the eurozone was France Industrial Production. The indicator showed a strong gain of 1.6%, crushing the estimate of 0.5%. France, the second-largest economy in the eurozone, continues to show decent numbers. Earlier in the week, the country posted its trade deficit for October, which narrowed to EUR 4.8 billion in October, its lowest trade deficit since March.

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EUR/USD Technical

• EUR/USD is putting pressure on resistance at 1.2133. Above, the next resistance line is at 1.2184
• There is support at 1.2045, followed by a support line at 1.2008
• The 10-day MA remains relevant. Currently, the pair is situated just above this line

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