Talks regarding additional payments to unemployment benefits are still ongoing, but judging by how the negotiations are progressing, an agreement seems to be far from reach. Last Thursday, Democrats once again blocked the proposal of the Republicans, which made many become increasingly pessimistic about the ability of the Congress to reach a consensus.
On the one hand, the Republicans do not want to incur additional costs, mainly because if this program fails, all blame will fall on them. However, Democrats are taking advantage of this situation, saying that additional assistance is needed to overcome the economic crisis and the dire health situation. Nonetheless, the markets are not experiencing serious pressure on this score, and most likely, the failure to agree will not really put additional pressure on the US dollar.
Anyhow, as of the moment, the EUR / USD pair is on a rise, and in order for the bulls to successfully push the quote above 1.2000, their first task is to overcome the resistance level of 1.1850. Only after that will the euro rise to a price level of 1.1905, and possibly reach and move around the 20th figure. However, if pressure on the pair persists, and it will increase if the quote breaks the support level of 1.1800, the bears will be able to return the pair to 1.1755, and then push it towards 1.1710 and 1.1650.
With regards to macroeconomic data, one good report was on the latest US inflation, which has risen due to increasing demand in the secondary market. Vehicles, used cars in particular, was revealed to have observed a rise in demand during the pandemic, which resulted in its price increasing by about 5.4%. In addition, the return of the economy to normal functioning led to an increase in the cost of trucks, which are more often used for transportation and labor relations.
General CPI has also jumped, according to the report published by the US Department of Labor, rising by 0.4% in August, slightly higher than the expected 0.3%. Its base indicator, which does not take into account volatile categories, also increased by 0.4%. Food prices, on the other hand, declined by about 0.1%.
As for the eurozone economy, the ECB initially released very positive forecasts, according to which the economy will experience less significant contraction in 2020, that is, by about 8.0%, and then grow by about 5.0% in 2021. However, the very next day, chief economist Philip Lane left the door ajar for a new round of economic stimulus in the coming months, saying that the region's economic recovery was uneven. Low inflation, which will persist in the coming months, only underlines his fears.
Another report, which has long been ignored by investors, is about the US budget deficit, which almost tripled in the first 11 months of 2020. According to the US Treasury Department, the growth of the US national debt continues to grow exponentially, but one of the advantages is that it has become much cheaper to service it. Due to the coronavirus pandemic, the demand for US Treasury bonds has led to a sharp drop in their yield, which remains close to historic lows. In terms of numbers, the annual US budget deficit for the first 11 months of 2020 is $ 3 trillion, up from $ 1 trillion compared to last year. In total, the US owes $ 20.8 trillion.
GBP / USD
Demand for the pound only decreases, as the UK and the EU continue to disagree on specific issues regarding Brexit. In the coming days, there will be a debate in the British parliament on the draft law on the internal market, the approval of which will lead to the cancellation of some sections of the Brexit agreement, which will only exacerbate discord and trigger legal action from the EU. Any negative news on this matter will put more pressure on the British pound.
Nonetheless, it is too early to look for a bottom and count on quick rollbacks in the pound. Most likely, the pound will decline, perhaps to price levels 1.2725 and 1.2670, but it could also rise again if the bulls were able to consolidate the quote above 1.2890. Such a situation will lead GBP/USD towards values 1.2940 and 1.3020.
