Euro and pound declined on the news that negotiations over the Northern Ireland Protocol have been postponed until June 30. Apparently, the two parties are having a difficult time agreeing on some conditions, so Britain said it is considering the possibility of unilateral action to ensure a smooth flow of supplies from the UK to the region. Meanwhile, Europe said its patience is running out and described relations with UK as "uncertain", which escalated fears that a trade war may happen.
During the press conference, EU said they were disappointed that UK did not comply with the terms signed in the Brexit deal. They added that if the UK takes unilateral action in the coming weeks, they will not hesitate to respond "quickly, firmly and decisively."
Earlier, EU declared it would file lawsuits against UK, or increase tariffs on meat products and other goods. According to them, the UK had enough time to express concerns about the agreement, but they did not do so.
UK, on the other hand, said there has been no significant progress on simplified health regulations and certifications that would have avoided more than half of the additional checks currently being conducted by EU customs.
The deadlock put strong pressure on both euro and pound, but fortunately pound remained in the sideways channel, which means that buyers can open long positions after a brief decline to 1.4085, or after a rise to 1.4140 channel. Doing so will push the quote towards 1.4190. Meanwhile, an unsuccessful attempt to rise above 1.4140 will open an opportunity for sellers to enter new short positions, and such will set off a drop to 1.4085. Then, a further decline will push the quote towards 1.4040 and 1.4000.
EUR / USD
The European Central Bank will meet today, but its outcome is unlikely to have a significant impact on the market, as earlier statements of ECB officials have lowered expectations for an early rate hike and cutback on bond purchases.
Most likely, the ECB will focus on their concerns about the unpredictable impact of the coronavirus, drawing attention to the uneven economic recovery and high unemployment. There is also a huge chance that it will ignore inflation, as the central bank has been following the actions of the Federal Reserve lately. Moreover, the EU economy is lagging far behind the United States, so the ECB will probably take a wait-and-see attitude and not rush to change decisions at the first signs of inflationary pressures.
One of the reasons why EU is lagging behind US is the delayed vaccination programs due to limited supply. New strains of the virus are also threatening the region, so officials are having a hard time implementing aggressive changes.
In view of this, IMF called on G7 countries to provide funds for vaccine production. Last month, they proposed a $ 50 billion spending plan to help immunize people from COVID-19, claiming that it would help avoid a scenario in which emerging economies recover much slower than developed countries.
In terms of macro statistics, exports in some areas of Europe, Germany for example, showed continued growth, albeit slightly slower. Destasis said the data for April was up by 0.3% month-over-month, while imports fell 1.7%. Trade surplus also rose to € 15.9 billion.
With regards to euro, a lot depends on 1.2185 today because a break above it will lead to a further jump towards 1.2215 and 1.2250. Meanwhile, a plunge below 1.2150 will push the quote down to 1.2100.