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Lagarde called for more fiscal stimulus (grants) rather than monetary stimulus (loans) as despite ultralow interest rates, NIRP (on DRF), huge pandemic QE, and huge liquidity, there is a lack of eligible and quality borrowers, who can return the loan (principal) even with zero interest rate. As a central bank (like Fed), the ECB, has only lending power, not spending. The ECB is also concerned about the return of capital (principal) rather than return on capital (interest) and thus going forward, the ECB has practically no tool left apart from jawboning.
In other words, like the Fed, the ECB has also done its job and there will be no further monetary stimulus in 2021 unless backed by Treasury equities (grants). The same is true for almost all the major G20 economies. The biggest problem for the EU is that although it has a common monetary authority (central bank-ECB), no common fiscal authority (like U.S. Treasury), and richer EU member states are not ready to finance budget deficits of poorer states.
Overall, EURUSD jumped almost +1.22% from Monday to Wednesday on less dovish Lagarde and renewed hopes for a Brexit deal despite British PM Johnson’s threat for an ‘AU’ type of deal (under WTO). But on mid-Thursday, EURUSD slips almost -0.40% on broad strength of US dollar amid fading hopes of an imminent CARES Act 2.0 and better than expected U.S. jobless claims.
Technical View: EURUSD
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