The euro-dollar pair continues to hold the defense on the eve of the Christmas weekend, clinging to the 22nd figure. By and large, traders found themselves in a stalemate against the background of an extremely contradictory fundamental picture. On one side of the scale – optimism about the prospects of Brexit and weak US macroeconomic reports, on the other side – Trump's obstinacy regarding the new stimulus package, new strains of coronavirus and low market liquidity. On the one hand, all these fundamental factors do not make it possible for EUR/USD buyers to bring back the growth trend, on the other hand, it also does not allow sellers to go below the 1.2100 level. As a result, the pair is marking time on the border of 21 and 22 figures.
The dollar index is still staying above the 90th mark, but dollar bulls are no longer showing the same ambitions that they had at the beginning of this week. Market participants are not ready to invest in the dollar, considering the greenback as a temporary ally in troubled times. Moreover, the latest macroeconomic reports leave much to be desired.
For example, yesterday, the core PCE Price Index was published during the US session, which measures the core level of spending and indirectly affects the dynamics of US inflation. It is believed that the members of the Federal Reserve carefully monitor this indicator. On a monthly basis, it fell to zero (the worst result since April this year), and on an annual basis – slowed to 1.4% (with a forecast of growth to 1.6%). The level of income of the population also fell to -1.1% in November (a three-month low). All of the above indicators came out in the red zone, falling short of the forecast values. The rate of initial applications for unemployment benefits continues to disappoint. This weekly indicator steadily declined from the beginning of September to November, reflecting the healthy trends in the US labor market. However, against the background of the second wave of the coronavirus crisis, the number of applications for benefits began to grow – since the beginning of December, this figure has been kept above the 800,000 mark. All this suggests that the final Nonfarm report for this year will be a complete disappointment.
The Philadelphia Fed Manufacturing Index for December, published on Tuesday, was not impressive either. The indicator, which is based on a survey of manufacturing companies in the region, came out at around 19 points with the forecast of growth to the 21st. Bad news also came from the US real estate market: home sales in the primary market plummeted 11% in November - the worst result since March, when the United States saw the peak of the coronavirus crisis. In the secondary market, sales fell to -2.5% (an increase of 4.4% was recorded in October). Analysts expected negative dynamics (the forecast was at the level of -1.1%), but the real figures turned out to be worse than expected - at a half-year low.
In other words, the latest macroeconomic reports have once again reminded traders of the consequences of the second wave of the coronavirus pandemic in the United States. The above-mentioned releases weighed on the US currency.
Optimism regarding the prospects for Brexit is also weighing on the dollar. According to rumors, the parties still came to a compromise solution and are ready to conclude a trade deal today. Against the background of such prospects, investors' interest in protective assets has significantly decreased. However, at the moment, no one can speak with certainty about how the Brexit epic will end. Today, at approximately 11:00 (London time), British Prime Minister Boris Johnson will make a statement on the results of the latest round of negotiations. We do not know whether he will announce a deal or admit to a fiasco. The ongoing intrigue does not allow either the bulls or the bears to feel confident.
The prospects for a new aid package for the US economy also remain uncertain. The fact is that Donald Trump said that he would not sign the bill on measures to support the population, previously approved by the US Congress, if it is not amended. He called the document itself a "disgrace" and demanded a three-fold increase in the amount of social payments. By the way, Trump vetoed the bill on the military budget (worth $740 billion), despite the significant support of this document in Congress. In response to this decision, the speaker of the House of Representatives said that the presidential veto would be overcome by a second vote. However, the same maneuver with a new package of incentives, most likely, will not work: there will not be enough votes. Therefore, the situation will float around until the beginning of next year: Trump will leave office on January 20, when president-elect Joe Biden will be sworn in. This factor keeps dollar bulls in good shape.
Thus, the fundamental background for EUR/USD is contradictory. Trading decisions on the pair can only be made based on the results of today's press conference by Boris Johnson. Despite the optimistic expectations, no one can say with certainty in which direction the pendulum will swing (according to rumors, the negotiations continued all night and are currently ongoing). If the parties manage to conclude a deal, then the euro will receive significant support against the dollar – we can talk about reaching the resistance level of 1.2277 (2.5-year high reached last week). Otherwise, bears of the pair will seize the initiative again, pulling down the price to a low of 1.2130 (the middle line of the Bollinger Bands on the daily chart).
