As traders struggle to determine the future direction of the market, many Americans may be left without unemployment benefits, which are coming to an end.
As we can recall, the US Congress adopted two new programs this year. The first was aimed at increasing the number of recipients of state unemployment benefits, while the second was about increasing the payments themselves. Both of these programs expire on December 31, which could create real problems for Americans who will be left without additional payments in the midst of the coronavirus pandemic in the United States.
There is a chance that lawmakers will try to find a compromise. But if they do not extend the duration of these programs, they may develop new support measures for those affected by the pandemic. However, there is no mention of this so far, which creates some tension for the market as a whole. The main risk posed by the termination of these programs is the fact that many households will not be able to service their debt. And to add to that, delinquent mortgages, consumer loans, and car loans threaten the stability of the American banking system. Such will significantly affect the pace of economic recovery in 2021.
As for more specific figures, about 13 million Americans receive benefits under the above programs, which is quite an impressive figure. The rise in unemployment, which is now happening with a proportionate increase in the number of COVID-19 cases, creates additional problems, as the termination of payments will immediately spike this indicator to record levels that we saw during the first wave of the coronavirus pandemic earlier this year.
Although the economy will not collapse if these programs are not extended, it will deal a significant blow to the lending sector.
With regards to the prospects for the European currency, as indicated in one of the studies, the observed narrowing of the yield spread on the eurozone government bonds may support the euro. But looking ahead, it is worth noting that this would be true under normal conditions, and not in those in which the economies of the eurozone countries are now. The risk of maintaining a partial lockdown for December this year remains quite high, although the latest data show an improvement in the epidemiological situation in the eurozone. Much will depend on how much the economy contracts in the 4th quarter of this year and how firmly it will survive the second wave of the pandemic. Undoubtedly, the appearance of COVID-19 vaccine next year will support economic recovery, but the sooner restrictive and quarantine measures are lifted, the faster a new wave of growth will begin.
In fact, Morgan Stanley said the eurozone economy will face a strong recovery after a second recession. But again, everything is in accordance with the expectation of available COVID-19 vaccine next year. Such will spur pent-up demand and lead to an increase in household spending, which will fuel a rapid economic recovery, similar to what happened in the third quarter of this year. To add to that, the EU stabilization fund, which was approved this summer, will start working. And it is planned to attract about € 750 billion to it. It will be an additional incentive for euro bulls who are not waiting for the breakout of the 20th figure.
So, for the technical picture of the EUR/USD pair, pivot will be the level of 1.1870, and a breakout from which will provide a strong upward move towards the level of 1.1915. The bullish momentum will not stop there, so there is a high chance that the euro may reach a price level of 1.1965. It may also test the 20th figure, which may lead to the completion of the bullish impulse. After that, the pair will again hover in a sideways channel, and the pressure on the euro will return. However, it is unlikely that it would break the level of 1.2000, and even more so see a consolidation above this psychological level. If the pressure on the euro returns, most likely, the bulls will try to protect 1.1800, on which the further growth of the pair depends. A breakout of this range is likely to increase pressure on the trading instrument, pushing it to the lows 1.1740 and 1.1660.
On the topic of economic data, attention was drawn to the report on manufacturing activity in the area of New York Fed, which, according to the latest data, slowed in November. The index dropped immediately to 6.3 points in November, while economists had expected the index to rise to 12.1 points.
The Federal Reserve also gave statements yesterday. For example, Vice Chairman Richard Clarida said the central bank intends to use all available tools to support the economy.
After the recent provision of a clear leading indication, the Fed believes a lot will now depend on how events will develop in the country's economy, which is beginning to gradually re-fever due to the coronavirus pandemic.
Many central bank officials also said that a slower pace of policy normalization would be preferable if necessary, if average inflation remains low from August 2020. Much will depend on the magnitude of the shock caused by the pandemic. If necessary, the Fed will make adjustments to the asset purchase program in the direction of their increase. Clarida, like many of his other colleagues, expects that in the future, the Fed will be able to base its economic forecasts on changes in fiscal policy. In other words, the Fed is waiting for active help from the White House and the approval of a new stimulus program, the amount of which the Republicans and Democrats cannot agree on since this summer.
GBP/USD
As for the British pound, the quotes fell yesterday amid doubts around Brexit. The lack of progress in the negotiations put pressure on the pound, and the continued differences on the main key issues does not add optimism. Many traders are expecting a result this Thursday (during the meeting of EU leaders), but there is a high chance that this will not happen.
So, for the technical picture of the GBP/USD pair, the movement of the pound depends on the level of 1.3240, as a breakout from which will lead to an upward move towards 1.3310 and 1.3390. Meanwhile, a decline towards 1.3165 will increase pressure in the GBP/USD pair, and may lead to a further drop towards 1.3105 and 1.3035.
