The euro has reversed directions…

The euro has reversed directions on Thursday and has posted losses. In the North American session, EUR/USD is trading at 1.1291, down 0.43% on the day.

What to do with APP?

This week’s calendar in Europe is thin, which has the markets looking ahead to next week’s ECB policy meeting. There are no expectations for any changes in monetary policy at the meeting. The eurozone has not been immune to higher inflation, although inflation is weaker than what the US and UK have been experiencing. Still, some ECB members have expressed unease about rising inflation.

Another key issue on the plate of bank policymakers is QE. The ECB’s 1.85 trillion euro emergency pandemic programme, the PEPP, has been in place since March 2020. Although the eurozone continues to struggle with Covid, the economy is showing improvement and the bank plans to wind up PEPP in March 2022. The burning question is what to do with the bank’s Asset Purchase Programme (APP), which has been utilized to keep inflation close to the 2% target and is running at 20 billion euros per month. There are fears that the termination of the PEPP will hurt eurozone members that are heavily indebted, and could cause a ‘cliff effect’. The ECB is leaning to increase the APP after the PEPP winds up, but there is a disagreement within the ECB if increasing APP is the way to go. With the eurozone on the path to recovery and inflation on the rise, hawkish ECB members are pushing for the bank to tighten policy rather than increase QE.

The financial markets have shown plenty of volatility since Omicron appeared on the scene and caused a panic over fears of a new Covid wave. The World Health Organization is saying that it will need 2-3 weeks to have a more thorough understanding of Omicron. It is also unclear at this stage how effective the Pfizer and Moderna vaccines are against Omicron, although preliminary reports have been positive, which has helped risk appetite rebound this week.

EUR/USD Technical

• EUR/USD has support at 1.1236 and 1.1163
• The next resistance lines are 1.1383 and 1.1457