ECB Holds Steady

The Euro has traded higher in the wake of yesterday’s European Central Bank meeting. The ECB held its headline policy rates and asset purchase programme unchanged as expected. However, the message delivered by the bank was resolutely one of caution with the bank warning that the pandemic still poses a serious threat to the eurozone economy and remains very difficult to forecast given the large degree of uncertainty around the path of the virus despite the start of vaccination programmes.

ECB Christina Lagarde told reporters during the press conference: “The start of vaccination campaigns across the euro area is an important milestone in the resolution of the ongoing health crisis. Nonetheless, the pandemic continues to pose serious risks to public health and to the euro area and global economies.”

ECB Remains Committed To Easing Path

The ECB head was also keen to reassure markets that the bank remains committed to keeping the economy supported through its monetary policy easing. On this matter, Lagarde said: “In this environment ample monetary stimulus remains essential.”

The most immediate threat to the eurozone economy is the continued lockdowns underway across many countries within the single bloc. With leading economies such as France and Germany having extended their lockdowns right through Q1 the eurozone is expected to take a significant hit to GDP. Following a 7.3% drop in GDP last year, the bank now forecasts GDP to recover this year, expecting an overall GDP rate of 3.9% over 2021. However, the ECB reiterated its message that this outlook is highly dependant on the path of the pandemic and as such, is subject to plenty of downside risks.

Looking ahead, Lagarde said: “We continue to stand ready to adjust all of our instruments, as appropriate, to ensure that inflation moves towards our aim in a sustained manner.” The ECB head went on to say: “Our policy measures, together with the measures adopted by national governments and other European institutions, remain essential to support bank lending conditions and access to financing, in particular for those most affected by the pandemic.”

ECB Maintains December Forecasts

In all, it was a fairly muted affair with the central bank delivering little in the way of new information. While the bank was keen to stress the downside risks and uncertainty in the outlook, there were some bright notes. The ECB maintained its economic forecasts from December, despite the subsequent rise in the virus since then, showing that the bank remains confident in a firm recovery this year.

Technical Views

EURUSD

The Euro continues to trade within the bullish channel which has framed the rally off the 2020 lows. Price recently corrected from the 1.2346 level but has since found support at a retest of the 1.2090 level. While this level holds as support, the outlook remains bullish in the near term.

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