Euro Stays Fragile As ECB Accelerates the PEPP Process

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The recent sell-off in EUR/USD appears to have slowed ahead of the end of the month as it is trading in a tight range, with the Relative Strength Index (RSI) highlighting a similar momentum as the indicator appears to be changing course ahead of oversold territory.

Looking ahead, it remains to be seen if the eurozone CPI report will affect short-term forecasts for the EUR/USD pair, as the total is expected to rise to 1.3% from 0.9% in February, while baseline inflation. at the level of 1.1% per annum for the second month in a row.

A rise in headline inflation may have limited implications for the outlook for monetary policy, as the ECB Economic Bulletin for March highlights a weighting adjustment in the Harmonized Consumer Price Index (HICP), where “the change in weights contributed to the increase. on HICP inflation in January 2021 “.

The amendment was made as the ECB insists that “the HICP weights used to calculate annual inflation in 2020 did not adequately reflect the major changes in household spending caused by the pandemic,” and it appears that the Governing Council will maintain the current monetary exchange rate. politicians. Policy as a member of the board of directors Isabelle Schnabel insists that “monetary policy can best support the economy by providing favorable financing conditions for as long as necessary.”
Vastly Increased Purchases Under the PEPP
Schnabel strongly supported the results-based approach, speaking at an event hosted by NYU Stern, as a Governing Council official advocates the use of PEPP “flexibly according to market conditions”, but the euro may still face obstacles ahead of the next ECB meeting in April. 22 as the central bank continues to pick up the pace of asset purchases.

The ECB’s consolidated financial report showed that PEPP increased by €21.9 billion in the week ended March 19, after rising €18.7 billion a week earlier, with the recent EUR/USD sell-off sparking a reversal in-retailer sentiment as traders open net long on the pair for the fifth time in 2021.

The decline from the January high (1.2350) could be a change in EUR/USD behavior rather than a correction in the broader trend, as the exchange rate falls below the 200-day SMA (1.1860) for the first time since May 2020. and the euro may face headwinds during the first half of the year as the ECB continues to pick up the pace of PEPP.