Eurozone approves EUR600 billion PEPP fund – Market Analysis – June 4

Eurozone approves EUR600 billion PEPP fund – Market Analysis – June 4

Eurozone follows suit its US counterparts in monetary policies

The European Central Bank announced an increase of 600 billion Euros for the PEPP (Pandemic Emergency Purchase Program). An amount higher than the market forecast average.

At first, the news was taken as positive, and both the Euro and the European stock indices experienced a rapid but short duration rise. Also helped by this positive sentiment is the fact that this measure will be extended for as long as necessary and at least until the end of 2022.

But the economic forecasts of the technical staff for the Eurozone were not so good, they expect an 8.7% drop in GDP for 2020, and although the rebound is expected to start in the third quarter of this year, the recovery to levels before the crisis would not be reached until the end of 2022.

The technical staff of the ECB projects a 5.2% GDP rise for the Eurozone in 2021 and 3.3% in 2022. This means that it will take more than two years to recover to the previous levels.

Lagarde emphasized the need to implement fiscal stimulus, alluding to the COVID rescue fund that is pending approval, so that these objectives are met.

After releasing these forecasts, the stock market indices and the Euro lost part of the territory. They gained momentarily in what can be considered a technical movement, but then resumed their bullish path, which was also helped by a better performance by the North American indices.

The rise in Italian and Spanish bonds is the element that best represents the market interpretation of the ECB's economic policy measure. Therefore, it is a positive reaction that could continue to support both the Euro and European stock markets shortly.

The approval of the European rescue fund, which may occur in the coming weeks, could add one more element of support to this positive sentiment.

EUR/USD has overcome the 1.1240 level and is heading towards a new target in the 1.1400 zone.


So far, the European indices have not continued the upward movement, although the ECB measure is positive. The reason may be purely technical.

Germany30 is in overbought zone and has encountered resistance in the latest Fibonacci retracement 0.786, which is located at 12572. A price consolidation or a correction towards the 12350 support level could be seen prior resuming its current bullish trend.


The behavior of the North American indices with which it is usually correlated will also be an element to take into account in this movement.

For this, the market will be aware of the North American employment figures that are published tomorrow, and that will probably show some improvement in the Non-farm payroll figure compared to last month.

In any case, the main point of attention will be the Federal Reserve meeting to be held next Wednesday. If the United States central bank follows its European counterpart's footsteps and adds more ammunition to its Quantitative Easing program, which, quite likely, will help provide further bullish momentum to the markets.


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