Important economic data in Europe published today – Market Overview

By: Miguel A. Rodriguez

17:01, 03 February 2021

In a technical rebound, EURUSD and EURGBP fully grasp the ECB statements.

On one hand, the PMI of services for January, which has risen slightly compared to expectations, 45.5 vs 45 expected, data that confirms that the European services sector remains at least, although still below the growth threshold of this index located at 50.

And on the other hand, the inflation data. This is more relevant it is the main objective within the European Central Bank mandate. The ECB's monetary policy aims to achieve an inflation level close to 2%, but not higher. For this, it deploys all its instruments to stimulate the economy such as interest rates, in some cases negative, and its program of purchase of assets.

The first reading of the data published today is positive due to the rise experienced in the IPC data, which for January has risen to 0.9% year on year from negative values ​​last month at -0.3%.

But the data has a drawback, which is that the increase is motivated by the end of the VAT cut that Germany had imposed last year as an additional stimulus measure to the economy and the introduction of a new tax on CO2 emissions. Which has an immediate raise effect on prices.

Therefore, it is a rise in prices motivated by tax increases and not by a rebound in domestic demand. Consequently, market analysts' general opinion is that the ECB is going to downplay this rise in inflation data and will not have it into consideration when setting the monetary policy. It will be necessary for these price increases to be sustained over time to affect the ECB decisions. The figures released in the following months will be essential and taken into account by market participants.

A rebound in inflation, such as today's, would have been interpreted by the market as positive for the Euro under normal circumstances as it would anticipate an upward normalization of interest rates. Still, this time the effect has been nil.

European Currencies

EUR /USD remains under pressure trading at the lows of the day around 1.2020. The pair has confirmed the downward break of the primary support located at 1.2065 daily close below this level. From a technical analysis perspective, it is in a downtrend with the first target around 1.1950.

The same happens in the price against the Pound.

EUR/GBP broke the support at 0.8866 and from a technical point of view has a clear path to the zone between 0.8700 and 0.8770. In this case, the RSI indicator is in the area close to the oversold on a daily chart, although it does not yet show any signs of exhaustion or divergences.

Sources: Bloomberg, Investing.com.

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