FX.co ★ ECB returns panic to markets

Before the publication of the employment report, contradictory data were received which aincreased the uncertainty in the markets and can lead to a sharp increase in volatility throughout the day.

The Fed's quarterly report showed that the threat of a slowdown in wage growth is still low. In 2018, the labor productivity in 4 square meters increased by 1.9%, which is slightly lower than the result of 3 quarters but above the forecast of 1.6%. The cost of labor increased by 2.0%, which reflects employer spending and its growth also indicates an uptrend in wages.

At the same time, the volume of assets of households and non-profit organizations decreased by 3.73 trillion. This has been the maximum decrease in the entire history of observations, even in 4 square meters. Back in 2008, losses amounted to 3.62 trillion. dollars with the fall of the stock market as the main reason. In December 2018, it showed the worst dynamics in history at this time interval.

Challenger reported in a monthly report that employers cut 76,935 jobs in February, which is the maximum reduction in 3.5 years and 45% higher than the amount of January layoffs and 117% a year earlier. It is noted that the reduction in jobs tends to increase from the second half of 2018, along with the unconvincing ADP report. Meanwhile, the chances of seeing decent numbers on nonpharma are declining today.

If the market considers the February report to be weak, there may be a delayed reaction effect on a sharp deterioration in the trade balance and an increase in the budget deficit, which will increase the fears of a recession and the demand for defensive assets. Increased volatility is almost inevitable.

EUR / USD pair

Following the meeting on Thursday, the ECB changed the rhetoric, and not only lowered economic forecasts, as the players expected but also announced the launch of a new round of TLTRO bank lending, which was unexpected for the markets. It was assumed that the ECB would only mark such a possibility and the launch of the program itself will be postponed to a later date.

The decision is more than serious and directly indicates the growing threat of a slowdown in the eurozone and in the world as a whole. Back in December, the ECB predicted an increase of 1.7% in 2019 and this forecast was reduced to 1.1% on Thursday. On the press conference, Mario Draghi talked about the significant slowdown in economic growth. He stressed that the reason for the negative changes in the continuing uncertainty, which is associated with geopolitical factors, obviously, this refers to Brexit, as well as, the threat of protectionism wars with the Trump administration and emerging market vulnerabilities.

Also, the ECB lowered its forecast for inflation. If in December inflation was expected at the level of 1.6% per year, they only assumed 1.2% and 1.4% by 2020.

It is clear that such a weak inflation forecast does not give any reason to wait for the growth of the interest rate in 2019 and its increase in 2020 is still questionable.

The next TLTRO round will begin in September of this year, with which its completion is scheduled for March 2021. The need for incentives is explained by the growing needs of banks in funding due to the threat of non-compliance with the ECB requirements.

The ECB decision caused significant changes in the markets. The stock markets of the eurozone countries went into the red zone and there was a sharp increase in demand for protective tools, in particular, for bonds. The yield on 10-year German T-bills fell to 0.062%, which is a strong bearish factor for the euro.

The chances of EUR/USD growth in the near future are close to zero. Consolidation at current levels can occur only in the event of the appearance of negative news for the dollar, capable of leveling the results of the ECB meeting. After yesterday's large-scale fall, EURUSD may return to the former support level of 1.1214, where short-term consolidation is possible, but then the fall should resume with the medium-term goal of the psychological mark at 1.10.

GBP / USD pair

The likelihood that the UK's withdrawal from the EU will not take place on the scheduled date of March 29. The decision will be to move at a later date, which is growing.

The pound is under pressure. Its technical growth is possible to 1.3140, however, the dominant direction is still south. An update of yesterday's low of 1.3067 is expected and an attempt to move to the support of 1.3015/20 is expected.