The pair fell below the support levels of 110.40, threatening to undo the last uptrend.
This change in market sentiment could be due to the worsening evolution of the pandemic after higher numbers of infections and more restrictive measures were seen in countries such as Japan.
However, yesterday we learned about the latest E.U. forecasts. Generally, the European Union showed a more optimistic tone given the acceleration in vaccination and the progress in the economic reopening. Thus, it revised the Eurozone’s GDP for 2021 to + 4.8% and + 4.5% for 2022, respectively.
The E.U. expects the European economy to reach pre-pandemic levels in the fourth quarter of 2021. However, they warn the speed of recovery could be very different depending on each country. Although some states might reach pre-crisis levels in the third quarter, it might take longer for others in a context where uncertainty and risks remain high. The European stock indices have reacted lower despite the positive forecasts.
The German DAX index lost 1.5% at the opening, and it finds itself still far from relevant support levels in a wide range between 15,100 and 14,900.
One factor that may influence the evolution of the market is ECB's strategic POV that Lagarde will present today ahead of the expected date of September. ECB’s president is expected to announce a new inflation target of 2%.
This could be seen as an important element in monetary policy. Although it might guarantee a policy of low-interest rates for a more extended period, it can also generate fears of an inflationary process for some investors, potentially affecting their investment decisions in the stock markets.
The Fed Minutes for June published yesterday in the United States did not provide any notable news. Fed’s newest position can still be considered dovish, in the face of a still incomplete recovery, mainly on the labor market side and a short-term inflation rebound that they believe to be punctual.
The inflation figures published next week for both the CPI and the PPI could be essential to know if the price increases are temporary or a sure thing. The market expects an official tapering announcement as soon as the next Fed meeting in August, which could be implemented by the end of the year.
Sources: Bloomberg, reuters.com.