Fundamental analysis of the euro area economy
The European Central Bank (ECB) held a meeting last week without any changes in monetary policy. However, members of the European Central Bank are expected to prepare the market for monetary policy changes in the coming weeks. At present, the European Central Bank deposit rate is negative 0.5 percent and it is clear that there is no room for further interest rate cuts. In terms of the market, the chance of interest rates falling to minus 0.6 percent by the end of 2021 is almost 70 percent. However, if the European Central Bank officials point to a reduction in interest rates in the coming days, the euro will weaken. However, the downward movement of the EURUSD pair may be limited.
From a fundamental analysis point of view, lower interest rates could not have a significant positive effect on the euro area economy. In addition, the European Central Bank has focused on the fluctuations of the EURUSD currency pair. If the euro strengthens, the eurozone's economic recovery will be hampered. But a weakening euro could support the eurozone's export-oriented economy. The fact of the matter is that the European Central Bank is a long way from intensifying monetary expansionary policies, and the market knows this. In addition, the European Central Bank opposes the strengthening of the euro. Therefore, perhaps any change in interest rate expectations will have a limited effect on the EURUSD pair.
As interest rate expectations do not have a significant impact on the market, euro area economic data is expected to have a similar effect. However, new euro area GDP data will be released this week. Below are the inflation data. At the end of the week, the final assessment of PMI, unemployment rate and retail index will be published.