FX.co ★ EURUSD: The euro continues to fall, and Germany plans to lift quarantine measures. The French economy will continue to shrink in the 1st quarter of this year

The euro ignores the good news from Germany and continues to decline against the US dollar, as does the British pound. The fall in risky assets and the strengthening of the US dollar began yesterday after the release of several fundamental reports on the US economy. The increase in the yield of treasury bonds once again shows the reluctance of investors to take risks. The rapid decline in risk appetite caused by higher US yields seems to be making the US dollar feel more confident.

Today, it became known that Germany is preparing to exit the quarantine regime, however, it is too early to rejoice. Chancellor Angela Merkel said that the fight against the outbreak of coronavirus in Germany is bearing fruit and in the near future she will consider lifting quarantine measures, despite the recent resumption of the number of infections.

The graph below shows the target threshold at which Germany will begin to lift restrictive measures and open the economy after the lockdown.

Angela Merkel predicts that the level of morbidity in determining the policy of the pandemic in the next few months will reach its target value. Let me remind you that initially, it set a threshold of 50 cases of infection per 100,000 people, which should be maintained for one week. Now, this threshold has been lowered to 35, when it is reached, the lifting of restrictions and quarantine measures will begin. At the moment, the average seven-day morbidity rate in the country is 62.6. "Additional tests for the coronavirus would allow the Ministry of Health to create a so-called "buffer" so that the government can get the desired result of the incidence of 35 people," Merkel said during a speech in Berlin. The strict restrictions, which were introduced in November last year, have a very strong impact on business and the public, which has recently been increasing in favor of easing the restrictions. Merkel, on the other hand, is taking a more cautious approach and is preparing to meet next Wednesday with the leaders of 16 German federal states to develop a comprehensive strategy for opening up the economy.

The head of the German Institute for Public Health has also called for a broader approach to quarantine policy, despite warnings about the risk of a third wave of coronavirus. Much will depend on the rate of vaccination and its effectiveness. According to the latest report from Bloomberg's Covid Vaccine Tracker, only 7 people out of 100 were vaccinated in Germany. In the UK, this ratio is at 29:100.

As for the fundamental indicators, in the first half of the day, reports were released that affect only the French and German economies. According to the statistics office Insee, the French economy contracted in the 4th quarter of this year much more than previously estimated. Due to the second national lockdown and the curfew, the gross domestic product decreased by 1.4% in Q4. In a report dated January 29, this indicator showed a decrease of 1.3% after an increase of 18.5% in the 3rd quarter of 2020. Compared to 2019, GDP was 4.9% lower.

According to a preliminary estimate by the Insee statistics bureau, the growth of inflation in France slowed in February 2021 due to falling prices for industrial goods and lower prices for services. Household spending fell sharply, which harmed inflation. So, consumer prices rose by 0.4% year-on-year in February, after rising by 0.6% in January of this year. For the same period last year, inflation was at the level of 1.4%. Economists had forecast an annual rate of 0.3%.

The data on German import prices did not worry traders much. According to the Destatis report, import prices fell by 1.2% year-on-year after falling by 3.4% in December. Economists had expected a drop of 2.1%. However, if you look at the report in more detail, the drop was caused by a sharp decline in prices for imported energy. The indicator decreased immediately by 13.1%. Excluding energy, the import prices increased by 0.3%.

As for the technical picture of the EURUSD pair, the fall was expected to continue, and the bears managed to update the next major support in the area of 1.2095. At the time of writing, investors are waiting for fundamental data on the US economy, which may continue the bearish trend of risky assets. A break in the support of 1.2095 may lead to a decline in the pair already in the area of the next major low of 1.2040. It will be possible to talk about the recovery of the euro only after the pair returns to the level of 1.2140, from which an upward correction will lead to an update of the maximum of 1.2190.