The latest employment reports show that jobs in the US have dropped significantly for the first time since April 2020. In particular, nonfarm payrolls decreased by 140,000 in December 2020, after rising by 336,000 in November. Clearly, the figure is worse than expected, although the overall unemployment rate remained unchanged at 6.7%.
At the same time, yield on US Treasury bonds grew amid expectations of more financial stimulus. Talks of increased budget resulted in a massive sell-off in treasuries, thereby boosting the yield. Investors expect that if Biden gains control of the US Senate, he will be able to promote his program, which includes a billion-dollar stimulus for the US economy.
As for other economic reports, they will be released this week. Inflation is expected to decrease amid rising fuel prices, while the persistent increase in COVID-19 infections is expected to deliver significant negative impact on retail sales.
In that regard, investors are closely monitoring the US CPI, as growth is expected to pick up in the coming months. Extremely low monetary policy, massive stimulus dollars and upcoming tax breaks are likely to affect prices, which the Federal Reserve is counting on.
In another note, Fed Chairman Jerome Powell is scheduled to deliver a speech this week, during which he will talk about the changes in fiscal policy undertaken at the end of last year. However, in his report, he is unlikely to signal any changes in monetary policy, therefore, it will remain close to zero, at least until 2023. At the same time, the volume of bond purchases will remain at $ 120 billion per month. Changes will be made only after there has been "significant progress" in meeting employment and inflation targets.
The ECB president, Christine Lagarde, will also give statements on the EU's monetary policy. Any hints of an increase in the bond buying program could further exacerbate the situation in the European currency, which has been experiencing serious growth problems lately.
In the EUR / USD pair, if the quote drops below 1.2170, there is a high chance that the euro will decline even lower to 1.2130 and 1.2060. Then, 1.2060 will be decisive for the bulls, as going beyond which could significantly affect the medium-term prospects in EUR / USD. Considering the recent statistics for the euro zone, it will be difficult for euro bulls to stand at this level.
According to the latest data, retail sales in the eurozone fell by 6.1% in November 2020, which is the largest drop since April, when the first wave of COVID-19 and the economic lockdown completely subsided.
Only Germany, where the economy continues to recover, gives hope. Despite the partial lockdown imposed in the country, industrial production and exports continued to rise in November 2020, which enabled the economy to avoid the downturn expected in the fourth quarter. In particular, output increased by 0.9% in November, while economists expected it to rise by only 0.7%. On an annualized basis, industrial production fell 2.6%. Excluding energy and construction, production rose 1.2% . But despite that, the outlook for the industry remains cautious, mainly due to the COVID-19 pandemic and strict restrictions.
With regards to exports, the data rose by 2.2% in November, after rising by 0.9% in October. Imports, meanwhile, grew by 4.7% against 0.4% in October. As a result, the trade surplus narrowed to € 16.4 billion, from € 18.2 billion in October.
Going back to EUR/USD, the euro will rise only after the bulls regain control of 1.2225. Only then can the quote reach 1.2280 and 1.2350.