The number of initial unemployed claims rose by 742 thousand over the week, which is higher than forecasted and indicates a slowdown in the labor market recovery. Due to a lack of progress on a new fiscal stimulus package in Congress, Mr. Kaplan of the Fed already hinted about the possibility of extending its purchases if necessary in order to support the economy.
The issue of incentives must be resolved one way or another. The US economy is losing the opportunities that were provided to it after 1975 and the 1979/82 energy crisis. As a result, the dollar received the status of "petrodollar". The turning point came during the dot-com crisis in 2000/02, and for 20 years now, the number of dropouts from the labor force has been growing, while the number of jobs created has been declining relative to the total population. It is possible to maintain a high standard of living in the current conditions only with the help of instilling massive cash.
On another note, the votes recounted in Georgia did not confirm Biden's victory, which was reduced from 14 thousand to 12 thousand. The total result is currently 306/232 in favor of Biden, so it is already clear that Mr. Trump can only count on lawsuits to which he needs to attach irrefutable evidence of falsification.The market believes less and less in such a scenario, so the pressure on the dollar is growing. Today, the advantage will remain with protective assets.
The target price made an upturn, although euro's long position declined again – by 572 million this time. As the most inertial market, the futures market still expects the dollar to rise; however, short-term indicators favor the euro, which can lead to a highly possible continuation of EUR/USD growth. So, all that the euro bulls have managed to achieve in 4 months is just to lead it into a side range.
During the first day of the EU summit, they paid attention to the issues of a seven-year budget of 1.07 trillion and a 750 billion economic recovery plan. There were significant differences on both issues, which did not allow a consensus to be reached. Most likely, the issue will be postponed for the near future – either a separate budget summit will be convened, or there will be an attempt to prepare a decision for the scheduled meeting on December 11-12.
The issue of a trade agreement with the UK is expected to be discussed today. For Mr. Johnson's Cabinet, the "X-hour" is coming, so there may be increased volatility.
Technically, the euro is getting ready to approach an important resistance zone 1.1900/20, which will sharply strengthen the bullish position. If this plan works out, it can further reach the level of 1.20. If not, a pullback to 1.1800/20 is likely.
Last month's report on consumer inflation was generally positive, exceeding expectations on a number of indicators. The price decline slowed to zero – there was a slight growth from 0.5% to 0.7% in annual terms. Moreover, the pound received a positive signal, but it is unlikely that it will be long-term. First, the introduction of new restrictive measures is sure to lead to a drop in consumer demand. Second, producer prices continue to remain in the negative zone, which indicates a very shaky foundation for recovery after the first wave of COVID-19. Lastly, there were still no signals from both sides about the EU negotiations.
The pound was in an uncertain state for six months, being under pressure from the threat of losing privileged access to the European market due to Brexit. In addition, the long-awaited reversal did not take place – futures are still selling and a net short position of 1.468 billion has risen by 551 million over the reporting week. Despite all this, the main thing for the pound now is knowing if there is a consensus in the EU negotiations.
Apparently, the reassessment of the US dollar's prospects after Biden self-announced his victory in the presidential race resulted in a target price reversal both for the euro and the pound in the last two weeks.
The pound remains in the rising channel. If today's negotiations turned out to be optimistic, it may be pushed to 1.3340/60, but if there is a lack of consensus again, we can expect a pullback to the middle of the 1.3170/80 channel.