FX.co ★ EUR/USD: Decline in German business confidence indicates economic contraction in the 1st quarter. Trump impeachment may fail again

The euro fell against the US dollar on Monday after news that German business confidence fell sharply in January this year, and disruptions in the supply of vaccines to Europe persist to this day.

The speech of the President of the European Central Bank, Christine Lagarde, on Monday did not concern monetary policy but was aimed at the environmental problem and the allocation of funds, which will contribute to the introduction of changes in the negative trend of the global climate. During her speech, Lagarde noted that the European Central Bank will act in partnership with those responsible for climate policy, leading the EU countries. Let me remind you that just recently, a single center was created among the countries of the European Union, where climate change will be studied separately. Support and financing of this direction were also discussed during the speech.

As I noted above, German companies' optimism about the pace of economic recovery has fallen sharply, as extended restrictive measures at home and abroad continue to put serious pressure on activity. The report indicated that the IFO German business confidence index fell sharply in January this year. The index fell to 90.1 points from 92.2 points in December 2020. Economists had expected a more moderate decline in the index to 91.8 points. The current assessment of its conditions and the index of expectations also deteriorated in January. The valuation index fell to 89.2 points against the forecast of 90.6 points. The index of expectations dropped to 91.1 points against the forecast of 93.2 points.

It is already clear that the second wave of coronavirus paralyzed the recovery of the German economy much more than was initially expected. Considering that Germany has extended tough restrictions, some of them have been in effect since the beginning of November, at best, the weakening of quarantine measures can be expected only in mid-February this year. This further heightens fears of a contraction in the economy in the first quarter of 2021. And if in November it was possible to say that mainly bars and restaurants were damaged, now manufacturers are experiencing more and more problems. Shrinking sales markets, exports and supply chain disruptions are a headache.

This is confirmed by the report last week, which indicated a decline in the purchasing managers index. The problems are mainly related to delivery times and raw material costs. It is worth recalling that in 2020, industrial production in Germany decreased by only 5%, in contrast to its neighbors. For example, in France and Spain, this figure fell by at least 9%. According to a recent forecast by the Bundesbank, the overall German economy is expected to grow by only 3% in 2021.

In the absence of other fundamental statistics, attention has been drawn to an active attempt by the Democrats to impeach Donald Trump, who had already left the White House last week. The House of Representatives approved the impeachment, and now it is up to the Senate in the United States, which so far has a majority of the Republican Party.

But until the impeachment is announced, the issue of the trial against Donald Trump also takes place. Recently, an increasing number of Republican senators have opposed the trial, which lowers the chances of the former president being convicted on charges of inciting the siege of the US Capitol that took place a week before Joe Biden's inauguration.

House Democrats are trying to accuse Trump of inciting mass riots in the Capitol, which in the future will help win the support of Republicans and impeach him. But why do this if Trump is no longer president? It's all in the details. If the Democrats achieve impeachment, it will prevent Trump from running again for the presidency of the United States after the expiration of Joe Biden's term.

According to media reports, recently, the passions in the Republican Party, which broke out immediately after the riots, seem to be subsiding, and the senators who will attend the trial are poised to defend Trump, as was the case with the Democrats' first impeachment attempt in the past year.

As for the technical picture of the EUR/USD pair, it will be possible to talk about the continuation of the bullish trend in risky assets with a confident breakdown of the resistance 1.2190, which will open the way to the highs of 1.2230 and 1.2280. If the bears regain control over the level of 1.2140, we can expect a new wave of the fall of the trading instrument to a minimum of 1.2090, and then to the area of 1.2055.