FX.co ★ EURUSD and GBPUSD: What is important in the European Central Bank's financial stability report? The pound declines on the EC President's statements about problems with reaching a trade agreement

The euro made another attempt to grow in the area of the 20th figure on the background of optimism due to the coronavirus vaccine, as well as due to a decrease in political uncertainty in the United States. This forces investors to place higher bets in favor of risky assets. At the beginning of the day, many traders were hoping for a Brexit trade deal, which, as you will learn below, does not seem so real anymore. Risk assets also receive additional support from the fall of the dollar, as the prospect of a long period of soft monetary policy on the part of the Federal Reserve puts pressure on safe-haven assets, including the US dollar.

Let's talk a little bit about the financial stability report that was published today by the European Central Bank. In the report, the European Central Bank noted the need to increase the protective assets of the leading banks in the Eurozone, since after the completion of state support programs, the population and companies may have large debt loads, and this will lead to losses on the banks' balance sheets. Although credit losses on companies' borrowings in the EU are much lower than during previous crises, as well as lower than in the US, banks need to take into account the likelihood of a deterioration in the financial situation of households and companies. The ECB noted that measures by European governments and the Central Bank reduced the risk of default, which affected the low profitability of banks.

The European regulator noted that the moment of completion of emergency assistance is of particular concern, since some companies that have just survived the crisis of the coronavirus pandemic, especially in the service sector, will not be able to resume full-fledged work so quickly as to fully cover loan repayments. Over time this will lead to the formation of pressure on the banking sector. Rising debt levels among governments, companies, and households will also lead to a sharp decline in bank profits.

Meanwhile, the report notes that government loan guarantees, debt repayments, and tax deferrals played a key role in overcoming the largest recession in a century. Measures taken by governments have allowed companies to continue to pay wages and maintain supply chains during quarantine restrictions.

Let me remind you that during the first wave of coronavirus, the European Central Bank provided financial assistance, keeping interest rates low at zero with exceptional monetary incentives. An additional stimulus is planned for December this year, which erodes the strength of the European currency, which for a long time can not break above the 20th figure.

As for the technical picture of the EURUSD pair, it has not changed. Bulls continue to open long positions on the euro, keeping the hope of resuming the upward trend and updating the 20th figure by the end of this year. Only a real consolidation at the level of 1.1900 forms a new upward push of the pair to the highs of 1.1960 and 1.2010. It will be possible to talk about the return of pressure on risky assets after sellers cope with the support of 1.1850, the breakdown of which will quickly lead to the demolition of several stop orders from buyers and the fall of EURUSD to the lows of 1.1800 and 1.1750.

GBPUSD

Returning to the topic of Brexit and the trade agreement, optimism among market participants began to decline after recent statements by the President of the European Commission, Ursula von der Leyen. Most likely, everything will be clear in the coming days, as, according to Leyen, the negotiations have moved to a crucial phase. Important differences remain between the two sides. "To be honest, I can't tell you today whether there will be a deal," von der Leyen told the European Parliament in Brussels. Three important issues remain unresolved. From their decision, it will be clear whether the party will conclude a deal or not. Von Der Leyen said problems remain over equal business conditions for European companies in the UK, as well as access to British fishing waters. Also, issues with high standards in the field of labor and social rights, the environment, and tax transparency have not been resolved. The President of the European Commission noted that since there is very little time left, she will do everything in her power to reach an agreement.

Against this background, the British pound retreated from its local highs and returned to the middle of the side channel, in which it has been since the beginning of the week. As for the technical picture of the GBPUSD pair, the bulls are still aimed at resistance in the area of 1.3390, a break of which will provide them with a direct road to the highs of 1.3470 and 1.3530. If the pressure on the pound returns, then it will be possible to talk about the resumption of the bear market only after the breakout of large support of 1.3270, which will quickly push the trading instrument to the lows of 1.3170 and 1.3100.