ECB Is Prepared, Biden Signs Executive Orders, PMIs On The Lookout

7 min readJan 22, 2021

ECB kept its rates unchanged and showed readiness to act, if the economic situation worsens. Joe Biden was seen signing executive orders, in order to battle the pandemic. Major countries have delivered and will be delivering their PMI numbers today.

ECB Sticks To The Original Plan

As it was expected, yesterday, during ECB meeting, the policymakers took a wait-and-see approach. At the last meeting, the Bank increased the Pandemic Emergency Purchase Programme (PEPP) to 1850bln euros and will continue the net asset purchases until at least the end of March 2022, or until the coronavirus pandemic is over. In yesterday’s meeting, the policymakers showed that they are ready to adjust their policies, in case the economic situation worsens. Christine Lagarde noted in her press conference that the pandemic is still a major worry factor and the ECB will monitor carefully the vaccination process in Europe. Also, the Bank left unchanged its deposit facility rate, marginal facility rate and the main interest rate at -0.50%, +0.25% and 0.00% respectively. Yesterday, the euro rallied against most of its major counterparts, including the US dollar. That said, the stronger euro is not working well with the Bank’s goal of reaching inflation numbers below, but close to +2.0% over the medium term. The current inflation figure stands at -0.3%.

EUR/CHF — Technical Outlook

EUR/CHF continues to trade below a short-term tentative downside line, drawn from the high of January 7th. However, the pair seems to be struggling to overcome its key support area, roughly between the 1.0733 and 1.0739 levels, marked by the lowest point of December and the current low of this week respectively. Although the current trend is to the downside, in order to get comfortable with lower areas, a break below the 1.0733 hurdle would be needed. Until then, we will take a cautiously-bearish approach.

If, eventually, the pair does slide below the 1.0733 zone, marked by the lowest point of December, that will confirm a forthcoming lower low, potentially clearing the path for further declines. EUR/CHF might then travel to the 1.0699 obstacle, a break of which could set the stage for a move to the 1.0680 level, marked by the lo of November 9th.

On the upside, if the pair is able to break the aforementioned downside line and then climb above the 1.0792 barrier, marked near the current highest point of this week, that may spark interest in the eyes of more buyers. The rate could then travel to the 1.0815 obstacle, a break of which might help lift EUR/CHF to its next possible resistance area, at 1.0840. That area is marked near the high of November 11th.

Biden Wastes No Time

Yesterday was the full working day for the new President of the United States, Joe Biden, who went ahead with signing executive orders. After signing the request to get back into the Paris Agreement on Wednesday, on Thursday, the main focus fell on battling the pandemic, which left at least 400000 Americans dead. In the new signed orders, it states that mandatory mask wearing will be enforced on federal property and public transportation. International travellers will have to present a negative Covid-19 test and to quarantine themselves once entering the country, something that many other countries across the globe have been practicing for quite a while now. Also, different government agencies will be able to use the Defence Production Act to request companies to make protective equipment needed to fight the pandemic. The development of new Covid-19 treatments and its testing methods are also something that Biden emphasized in his orders. Once again, the US indices rallied yesterday, hitting new all-time highs. However, just minutes before the close, all indices reversed lower. DJIA even ended the session slightly in the red, due to another bad earnings report from IBM, as the numbers came out below initial forecasts. We already saw the US indices hitting new all-time highs, but this morning the cash indices are moving a bit lower, and so, there might be a possibility to see a bit more downside. That said, for now, we would still class this slide as a temporary correction, before another possible leg of buying.

S&P 500 — Technical Outlook

Looking at the technical picture of the S&P 500 on our 4-hour chart, we can see that, despite the small correction lower on the cash index, the S&P 500 is still running above a short-term tentative upside support line drawn from the low of December 21st. Even if the price drifts a bit lower, as long as the index continues to balance above that upside line, we will stay somewhat positive with the near-term outlook.

As mentioned above, a further slide could test the aforementioned upside line, which if holds, might be seen as a good bouncing ground for the index. The price may then rush back to the 3831 zone, marked by the high of January 8th. If the buying doesn’t stop there, the next possible target could be the current all-time high, at 3867.

Alternatively, if the index breaks the previously-discussed upside line and then falls below the 3779 hurdle, marked by the low of January 19th, that could attract more sellers into the arena. The S&P 500 might drift to the low of January 15th, at 3748, a break of which may set the stage for a push to the 3693 level. That level is marked near the low of January 6th.

PMI Day

Today is the preliminary PMI day for the month of January, as some major economies will be delivering their readings. Some countries have already released their numbers. Australia and Japan have produced their readings, which most came out below expectations. Only Australia’s manufacturing PMI was seen above its initial forecast of 55.7, showing up at 57.2. We will also get preliminary PMIs from some individual European states, together with the whole block itself. The current forecast for the UK ones is expected to remain the same. Unlike the composite and manufacturing figures, the services reading is believed to have stayed fractionally in contraction territory, at 49.9. Germany is also set to deliver its readings, where services one is forecasted, not only to have stayed contractionary, but to have fallen a bit more, going from the previous 47.0 to 45.3. Later on, the US will also show its set of numbers, where the expectation is to see a slight decline as well. That said, the US ones are believed to have still stayed in expansionary area.

Along side the PMIs, some countries will have their retail sales numbers delivered too. Australia already released its preliminary MoM number, which came out as big disappointment, at -4.2%, when the previous number was sat at +7.1%. UK had also delivered its final retail sales number for the month of December, both core and headline, which came out as a disappointment. But the one that we will have to wait for today, will be Canada’s. The Canadian core and headline retail sales MoM figures for the month of November are expected to show up lower than the previous ones. The core, which excludes automobile sales, is believed to have fallen the most, going from +1.0% to +0.3%, whereas the headline one is forecasted to have only dropped from +0.4% to +0.1%.

As For The Rest Of Today’s Events

US will deliver their existing home sales for the month of December. Currently, the expectation is for a slight decline, going from 6.69mln to 6.55mln. Also, the US crude oil inventories will be on the lookout, as the number is expected to have increased from -3.247mln barrels to -1.167mln, which might be a negative for oil prices.

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