The ECB turns everything upside down – Market Overview

By: Miguel A. Rodriguez

14:47, 03 March 2021

A report by the European Central Bank, published by the Bloomberg agency, reveals a different assessment of the central bank's attitude towards the long-term rise in interest rates.

Before this, the statements of different ECB members had shown their determination to prevent long-term rate hikes from slowing down the recovery process of the European economy. They even mentioned the possibility of increasing the volume of the asset purchase program, intensifying the expansionary monetary policy. After these statements, the immediate effect on the market was the depreciation of the euro and a decline in sovereign bond yields.

According to the Bloomberg report, such concerns don’t seem to exist. The ECB does not plan to take drastic measures to curb recent developments in the bond market, as they believe the risk is manageable through verbal interventions and flexible QE programs.

After the report was unveiled, markets reversed all the euro's downward movement experienced the previous day.

EUR/USD has corrected up to the 100 hourly SMA zone, around 1.2090, acting as resistance in the short term. Above this zone, the pair could work its way higher to 1.2180.

However, everything could largely depend on the evolution of the US Dollar, which has undergone a downward correction today but can be influenced by American bonds' long-term interest rates. In this sense, the 10-year bond yield has recovered lost territory to the level of 1.44%, a movement that, if continued, would positively affect the price of the US Dollar.

The economic data published today in Europe, with the German services PMI showing a reading of 45.7, below last month's figure of 46.7, reveals the decline experienced in Europe as a result of the lockdown measures that mainly affected the services sector.

Despite the negative data, the European stock markets started the day in the green, with Germany30 index rising around 1% during the European session.

Technically, the index is near a major resistance zone around 14,180 (record highs), the breakout of which paves the way for further gains. The RSI shows no signs of retreating on the daily chart, finding itself below the overbought zone with enough room to continue higher.

Sources: Bloomberg, Reuters.

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