The pound and the euro went in different directions before the US session opened, which was associated exclusively with inflation data both in the UK and the EU. Nevertheless, the pound began to behave the same way with its neighboring continent while approaching the US session. And it's all about today's meeting of the Board of the European Central Bank, for which investors are beginning to prepare in advance. It should be noted that the decisions of the second central bank of the world, at least in terms of its impact on financial markets, have an impact on all currencies, without exception. The data on Europe's inflation yesterday, practically does not leave the European Central Bank any choice but to ease its monetary policy again. To do this, they have to expand the quantitative easing program. Another thing is that this measure was already applied during the previous meeting, so such a step is practically ruled out today.
It is very likely that Christine Lagarde will announce the adoption of this measure during one of the next two meetings. Nevertheless, this is enough for investors' interest to shift from the single European currency towards the US dollar. And given that this currency pair accounts for more than half of the trading volumes of the currency market, this will lead to the greenback's global growth.
Europe's inflation or rather deflation has been an issue for five months in a row. At the same time, the decline rate in consumer prices has invariably been at the level of -0.3% over the past four months. This is despite ECB's several attempts to fix the situation through quantitative easing. Theoretically, it should have been realized long ago that such a policy does not give the desired result. However, almost all central banks in the world continue to believe that economic problems can be solved with the help of the printing press. In view of this, the European Central Bank has no choice but to further increase the volume of quantitative easing.
Inflation (Europe):
It was mentioned above that the pound's initial behavior was slightly different. It rose, which is contradictory to the situation of consumer prices in the UK. Inflation accelerated from 0.3% to 0.6%. This means that the Bank of England will remain a refuge of stability and invariability of monetary policy in the near future. Thus, the pound will be near the current highs in the medium term. Nevertheless, this does not exclude its local move towards weakening, albeit only temporarily.
Inflation (UK):
However, do not think that things are only important in the euro area. The forecasts for the US labor market are not optimistic. The number of initial applications for unemployment benefits is expected to decline from 965 thousand to 915 thousand. What's worse is the repeated applications, which are forecasted to rise from 5,271 thousand to 5,540 thousand, since they reflect precisely long-term unemployment.
It is clear that the labor market situation is clearly causing several concerns. Its recovery pace is clearly slowing down, while the unemployment rate is at risk of possibly rising. And this, despite the fact that the unemployment rate is quite high. However, no one will be interested in this today, since the applications data will be published simultaneously with the press conference of Christine Lagarde, which will be the focus of everyone's attention.
Number of re-claims for unemployment benefits (US):
The EUR/USD pair is moving along a correction course from the high of the mid-term upward trend located at 1.2349. As a temporary support, the coordinate 1.2060 is used, which is confirmed by the history of December 9, 2020. We can assume that the current pullback in the correction stage may end if the price holds below the level of 1.2100. This will open the way towards the values of 1.2060-1.2000.
An alternative scenario in the market development will be considered if the price holds above the level of 1.2180 in the four-hour time frame, which may cast doubt on the stability of the correction course.
The GBP/USD pair found a resistance again in the previous local high of the mid-term trend of 1.3690/1.3710, where there was a natural stop that led into a pullback. We can assume that the area of 1.3690/1.3710 will continue to put pressure on buyers, which will positively affect the volume of short positions, if the natural basis of the past coincides.
