Economic calendar
4 January 2020
An interesting calendar spread on corn
5 February 2021
Several traders have asked me for my opinion on Eur-Usd. Below is my analysis, in which I try to understand what may happen in the coming weeks.
I start at the end: the FOMC meeting last Wednesday (27 January). Some aspects caught my attention. There is a "weakness concentrated in the sectors of the economy most adversely affected by the resurgence of the virus and by greater social distancing. Household spending on services remains low, especially in sectors that typically require people to gather closely, including travel and hospitality."
However, "the housing sector has more than fully recovered from the downturn, supported in part by low mortgage interest rates. Business investment and manufacturing production have also picked up."
The Fed introduces the topic of vaccines by pointing out that "the path of the economy continues to depend significantly on the course of the virus." Significantly, however, a temporal reference to the effects of Covid has disappeared: the disease will continue to affect the economy, employment and inflation "in the short term", the December statement explained, an indication that disappeared in the official January note. The reference to the "medium-term" about the risks created by the virus also disappeared: they are in fact "short-term," Powell said.
At the ECB meeting 6 days earlier, Christine Lagarde points out that "the renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity." By adding that "output is likely to have contracted in the fourth quarter of 2020 and the intensification of the pandemic poses some downside risks to the short-term economic outlook."
At this point, I compared some of the main macroeconomic data of the two economies. For easier and quicker analysis, I constructed the graphs by subtracting the US data from the Eurozone data. In this way, if the graph of a data goes up, except for the Unemployment rate where the opposite is true, it means that the Eurozone has appreciated relative to the US. If the graph goes down, then the US has appreciated more than the Eurozone.
Below you can see the graphs of GDP, Unemployment rate, Manufacturing PMI and Retail Sales.
In three out of four data, one year later (January 2020-January 2021), the US economy has improved compared to the Eurozone. Only regarding the unemployment rate, twelve months later, did the Eurozone appreciate over the US. In particular, what emerges from the graphs above is that in the second half of 2020, the US economy appreciated over the eurozone economy. A clarification: the January Eurozone GDP data is the expected one, as it will come out in a few days.
Now, let's look at the chart of Eur-Usd, to see if the trend has respected the analysis made above.
The Eur-Usd trend is bullish since mid-May, from time to time interspersed with more or less long phases of sideways movements. This is particularly the case since the end of October and does not agree with the analysis of macroeconomic data.
There are no other particular aspects. The two central banks are continuing their monetary stimulus by injecting liquidity and keeping interest rates steady at current levels for many more months.
At the end of the analysis, it can be argued that the Eur-Usd exchange rate level is incorrect, it should be lower. The first important levels for Eur-Usd are 1.21600 (upwards) and 1.18300 (downwards). If conditions and data do not change, my first medium- to long-term target is in the 1.13000/1.13500 area.
Several traders have asked me for my opinion on Eur-Usd. Below is my analysis, in which I try to understand what may happen in the coming weeks. I start at the end: the FOMC meeting last
I am a macroeconomic and financial analyst with over 30 years’ experience, including two years as a fund manager. I specialise in currencies and commodities, and I am the author of several successful books on trading, macroeconomics, and financial markets.
