FX.co ★ Eurozone policymakers expect to wind down support measures in 2022

In the absence of important fundamental reports and under the impression of yesterday's US inflation, traders are quite restrained today in the market, waiting for further guidance from the President of the European Central Bank, Christine Lagarde, and the Chairman of the Federal Reserve, Jerome Powell.

During the European session, an interview with the governor of the French central bank, Francois Villeroy de Gallo, was published. In short, Villeroy de Gallo is confident that the European Central Bank can complete its emergency assistance program deployed due to the coronavirus pandemic as early as next year, adapting its monetary policy tools to continue supporting the economy after the crisis. "We could complete the PEPP program by March 2022," he said in an interview with Bloomberg. "This will not mean a sharp tightening of our monetary policy, and the reinvestment under the PEPP program will continue." The governor of the Bank of France also hinted that the ECB may continue to buy bonds with the help of a new program, but did not disclose details.

Today, the President of the European Central Bank, Christine Lagarde, will speak, which may shed light on the conditions under which real conversations will begin about the need to curtail stimulus measures to prevent the economy from overheating in the future. Some senior ECB officials say that the phase-out of the PEPP program could begin as early as the third quarter of this year, while other policymakers warn against drastic changes. Any changes in the existing programs may support the European currency.

But in fact, no one will be in a hurry, and there are several objective reasons for this. Today, there is talk in the market that the European Central Bank may abandon the tight peg on inflation and go the way of the Federal Reserve, allowing prices to temporarily rise above the target value of about 2.0%. And this indicates that the European regulator will not rush to change the conditions of monetary policy in the near future. And it is not worth doing this, since, according to the latest forecasts of economists of the same bank, the eurozone economy will only return to its pre-crisis growth only in the middle of next year. Given that the risks of the growth of the coronavirus pandemic make their adjustments every time, it is unlikely that the ECB will run far ahead since such statements can create another problem with the rise in the price of debt and rising bond yields, as it was in March. The calculation of the economic growth forecast is complicated by the slow deployment of the European Union's 750 billion euro recovery fund.

Despite yesterday's inflation data, some Federal Reserve officials are still expressing concerns about its slow growth. Let me remind you that the US consumer price index exceeded economists' forecasts and rose by 0.6% in March after rising by 0.4% in February. Economists had a forecast growth of 0.5%. The growth occurred against the background of a gradual return of the economy to the state in which it was before the outbreak of the coronavirus pandemic.

The Federal Reserve is keeping a close eye on rising prices as the economy reopens and demand gradually returns to pre-crisis levels. A change in the long-term trends associated with the coronavirus pandemic, which has kept costs down around the world, may manifest itself after it ends. This will quickly lead to the implementation of the Fed's new strategy to keep inflation above the target level of about 2% for some time.

In an interview today, Boston Fed President Eric Rosengren said that we have a better chance of succeeding with the new monetary policy regime than if we did not have it. "Given the experience of the last decade, we should clearly understand that getting 2% inflation will not be so easy," he said.

As for the technical picture of the EURUSD pair, it has not changed much compared to today's forecast. Buyers of risky assets coped with their task and defended the support of 1.1935 in the first half of the day. As long as trading is above this range, we can expect the euro to continue rising to new local highs of 1.1990 and 1.2050. If the bears manage to win back the level of 1.1935 in the second half of the day, the pressure on the euro will increase, which will lead to a decrease in the EURUSD in the area of larger support of 1.1920, on which the further bullish momentum of the pair depends.

As for today's fundamental statistics, the report from the EU statistics agency Eurostat on industrial production in the euro area did not hurt the euro much. According to the data: industrial production declined less than expected, falling just 1.0% in February, after rising 0.8% in January this year. Economists had expected a 1.1% drop. Energy production decreased by 1.2%, while production of industrial goods fell by 1.9%. On an annualized basis, industrial output fell 1.6%, while economists had forecast a 0.9% drop.

GBP

The British pound tried to break above the major resistance of 1.3773 but again failed to cling to it. From a technical point of view, little has changed. Buyers still need to make their way above yesterday's highs around 1.3773 to prove their presence in the market. This will allow us to continue the upward correction already in the area of the highs of 1.3825 and 1.3875. The pressure on the pair was created after the weak report on labor productivity in the UK. According to the Office for National Statistics ONS, productivity fell by 0.7% after rising by 4.0% in the third quarter of 2020.

As noted above, the movement in the second half of the day will be based on the statements of Federal Reserve Chairman Jerome Powell, which may serve as an impetus for new growth of the trading instrument with the update of the daily high.