FX.co ★ EUR/USD. ECB sends "hello" to the debt market and supported the euro

The results of the March meeting of the European Central Bank turned out to be rather contradictory, although some theses that were voiced were optimistic. Buyers of EUR/USD took advantage of this, as the pair settled above the 1.1950 level.

But take note that a stronger argument is needed in order to reverse the trend – and not just something from the ECB. The euro's vulnerability is also due to the coronavirus factor. Weak vaccination rates, an increase in the number of infected people, and as a result - the prolongation of quarantine restrictions. All these circumstances put background pressure on the euro, especially against the background of the shock rate of vaccination in the United States. If in the United States, the first dose of the vaccine was received by about 100 million people, then in the EU countries this figure exceeded only the 40 million mark. In Europe, there are complaints about interruptions in the supply of vaccines, bureaucratic delays and public distrust of vaccination. Plus, there are isolated, but still fatal cases. For example, today it became known that another European country – Norway - suspended vaccination with AstraZeneca. Earlier, representatives of Estonia, Latvia, Lithuania, Denmark and Austria announced a similar decision. The pause in the vaccination campaign will continue until specialists find out whether there is a causal relationship between the administration of the drug and the onset of death.

The coronavirus factor was also on the ECB's agenda. According to Lagarde, the high rate of infection, the extension and tightening of quarantine restrictions in the EU countries are putting "serious pressure" on economic activity in the European region. It is noteworthy that the ECB has minimally improved the forecast for GDP growth in the euro zone this year – if at the December meeting this forecast was at 3.9%, then at today's meeting it was revised to 4%. But at the same time, Lagarde noted in a separate line that a high degree of uncertainty remains in this issue - especially against the background of an increase in the number of infected people and weak vaccination rates.

Following the results of the March meeting, the ECB left all the parameters of monetary policy unchanged. But at the same time, the central bank warned that in the next quarter, it will increase the pace of purchases under its PEPP program. This is a kind of "hello" to the debt market: The ECB still did not ignore the rise in European bond yields, despite the distant statements of some representatives of the central bank ahead of today's meeting.

As for the expected inflation, according to the updated forecasts, the inflation growth in the euro area will be 1.5% this year, 1.2% next year, and 1.4% in 2023. Commenting on this forecast, Lagarde noted the acceleration of inflation over the past months, while emphasizing that the underlying price pressure remains "restrained".

The euro-dollar pair showed mixed dynamics both during and after the meeting. So, after it announced the acceleration of the pace of purchases within the framework of PEPP, the single currency plunged to the bottom of the 19th figure. However, following the results of Lagarde's press conference, the euro once again spread its wings, continuing its corrective growth. The head of the central bank, in particular, said that the ECB does not control the yield curve, but responds "to changing conditions." She also said that the central bank will continue to inject liquidity through refinancing operations, while remaining ready to adjust all available instruments (if inflation starts to slow down again).

In general, today's meeting was held under the sign of restrained optimism, contrary to the rather pessimistic previous forecasts of analysts. Actually, the euro has kept afloat due to this factor, despite all the remarks of the dovish nature.

The US dollar index, in turn, was under pressure due to the increased attraction to risky assets. Key Wall Street indexes opened in the green zone, reflecting the interest of investors. In particular, the Dow Jones rose by 1.11%, getting close to record highs, and the Nasdaq has already added 2.63%. According to analysts, this trend is largely due to the latest inflation report. The overall consumer price index came out at the level of forecasts (the core index fell slightly short of the forecast levels), thus reassuring those investors who were concerned about the prospects of a sharp increase in inflation.

Thus, the results of today were unipolar: the ECB did not plunge the euro, while the dollar weakened throughout the market, due to increased interest in risky assets. Given the current fundamental background, we can assume that the pair will continue its corrective growth to the psychologically important mark of 1.2000 (the lower limit of the Kumo cloud on the four-hour chart). This target is key: if the buyers of EUR/USD can overcome it (and most importantly-gain a foothold over it), then we can talk about the first signs of a trend reversal. Otherwise, the bears will seize the initiative again, pulling the price into the area of the 18th figure (the support level is located at 1.1860 - this is the lower line of the Bollinger Bands on D1).