Europe Closes Up (a Little)

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The macro point

Europe is closing up (a little)The macro pointBad news. The projected downturn of the European economy in the first quarter of this year will persist at least until the end of April-beginning of May. Over the past two weeks, the main European countries have decided to introduce new restriction measures to tackle the third wave of the pandemic. France and Poland have implemented a new lockdown (the third for France). Germany and the Netherlands have decided to extend their partial lockdown at least until the third week of April. The British variant, more contagious and affecting younger populations, is now dominant in Europe. It accounts for 67% of infections in France, compared to about 50% a month ago. In Germany, the proportion is similar (65%). Given the slow deployment of the vaccine in Europe and the problems encountered in the production chain, European leaders had no choice but to implement stricter measures to combat the pandemic. However, these measures will have a lesser economic impact than the two previous lockdowns of March and autumn 2020. In many cases, the intention of political authorities has been to avoid stifling economic activity. Nevertheless, this will inevitably accentuate the growth differential between Europe and the United States and will result, among other things, in a resurgence of incoming capital flows to the United States in the coming months. These capital movements should structurally support the upward trend of the US dollar in the medium term – confirming what we mentioned last week.

On the American side, the pandemic is under control for now, with a continuous decline in new daily infections for several weeks. Considering the budgetary measures already taken and the discussions around a stimulus plan via infrastructure amounting to an astronomical 3000 billion dollars, everything suggests that the rebound of the American economy will be very strong, from the second quarter of this year. The question of the spread of mutant strains of the virus also arises across the Atlantic, but to a lesser extent. The speed of the vaccination process allows anticipating a rapid lifting of social distancing measures – probably in the coming weeks.

Technical point

In the foreign exchange market, the trajectory of the euro against the US dollar is very clear. The decline that began several months ago has accelerated in recent sessions (a weekly drop of 2.3% of the euro against the greenback). This decrease is mainly due to the expected growth differential between the United States and the eurozone, reflecting Europe's delay in the vaccination process. The pair now trades close to its lowest points of 2021. Everything indicates that the bearish phase is not yet over. From a technical analysis perspective, last week's break of the 200-day moving average at 1.1854 is a significant bearish signal. The medium-term target is now a return to the November 2020 lows, in the 1.1600 area. The supports and resistances shown below respectively indicate the lows and highs within which the rates should evolve during the week.

	SUPPORTS	WEEKLY	RESISTANCES	WEEKLY
	S2	S1	R1	R2
EUR/USD	1.1600	1.1692	1.1971	1.2037
EUR/GBP	0.8373	0.8480	0.8640	0.8693
EUR/CHF	1.0840	1.0950	1.1116	1.1170
EUR/CAD	1.4631	1.4750	1.4939	1.4989
EUR/JPY	126.60	127.17	130.42	131.22

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Announcements to follow

This week will be primarily focused on American news. Discussions between Congress and the White House on the infrastructure program will continue. At this stage, no one expects an agreement to be reached before at least the summer. Several overall very positive American statistics are expected, which should support the US dollar. The consumer confidence index (Conference Board) is expected to jump to 96.0 due to the effect of stimulus checks received by American households. These checks, issued by both the Trump and Biden administrations, have preserved the purchasing power of the majority of the population in the absence of automatic stabilizers similar to those existing in Europe. The labor market is also expected to continue performing well. The consensus is predicting a near quadrupling of job creation in March compared to February (at 403K). All of this confirms that the American recovery is already well underway...while Europe is still struggling with the virus and an economic activity expected to stall in the second quarter. The theme of Europe's economic outperformance compared to the United States that prevailed last summer (due to better pandemic management at the time) did not last long. Below you will find the publications and events that should have a major impact on currency trends.

DAY	TIME	INDICATOR	WHAT TO EXPECT?
30/03	15:00	Consumer Confidence – Conference Board (March)	Expected jump to 96.0 from 91.3 previously (effect of stimulus checks?)
31/03	08:55	Change in Unemployment (March)	Decrease: -13K
	13:15	Non-Farm Payrolls (March)	Jump to 403K from 117K the previous month.
	15:00	Pending Home Sales (February)	Expected decline to -3.5% from -2.8% previously.
01/04	15:00	ISM Manufacturing Index (March)	Maintained at a high level, at 61.0 according to the consensus.

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