Considering the scarcity of fundamental data, the corresponding reaction of currency traders was not long in coming. The EUR/USD pair spent the second day in a narrow side channel, and the volatility did not go beyond 40 points, which is quite small, especially given that buyers of risky assets expect the continued strengthening of the trading instrument.
EUR/USD and the reasons for the side channel
Weak demand for the euro at current highs is directly related to the lack of guidance on where to move next. The idea of a quick coronavirus vaccination is no longer pushing the markets up, as the speed of its implementation was not as fast as many thought. There are no new and necessary statements from central banks, and purchases of the euro at current highs can lead to new verbal interventions in the European currency market, as it was in January this year, which caused an instant drop in the EUR/USD pair. Quarantine measures are still in effect, and so far no one is in a hurry to talk about their cancellation. All this ties the hands of traders and forces them to take a wait-and-see position. On the other hand, the US dollar is also not needed by anyone. Even if we take as a basis the growth of the US economy, which will be clearly faster than the growth rate of the European one, huge financial injections of trillions of dollars stop traders from buying the dollar, since the current policy of the Democrats is clearly aimed at maximizing the injection of money into the economy under any pretext.
Yesterday, the US Congressional Budget Office released a report that provides a forecast for the US budget deficit this year. It will be clearly larger than predicted, precisely for the reasons I mentioned above. According to the data, the U.S. budget deficit is projected to be $2.26 trillion this fiscal year, which ends in September 2021. The initial forecast was $1.81 trillion. Last year, the deficit was $3.13 trillion, the largest since World War II. The agency's forecast for the deficit over the next 10 years was more optimistic: the cumulative gap from 2021 to 2030 is expected to be $345 billion less than the previous forecast. It is worth noting that the current forecast considers only the stimulus package for the US economy, which was adopted under Donald Trump in the amount of $900 billion in December 2020. It does not take into account Joe Biden's latest $1.9 trillion proposal, which will further inflate the "books." The report also shows that the increase in the minimum wage is directly related to the loss of jobs, and the checks issued in December have not yet led to an increase in spending by consumers, who are more inclined to save than to rash spending. Apparently, the above report can become quite a weighty argument for Republicans, who can use it to block Joe Biden's new $1.9 trillion proposal.
Donald Trump - impeachment
Yesterday, the speech of Democrats continued, accusing Donald Trump of provoking the deadly attack on the US Capitol, putting his vice president in danger, and then expressing solidarity with the rioters. For the past two days, all the evidence from the Democrats has been that Trump deliberately ordered his supporters to attack the Capitol through the slogans: "fight like hell" and "act by completely different rules." The arguments were also supported by the testimony of the rioters themselves, some of whom said that they acted on Trump's orders. As for Trump's defense, she went on to invoke the First Amendment action that can be imposed on Trump's speech at the White House on the day of the Capitol attack. Democrats clearly disagree with this position.
Joe Biden and COVID-19
Current US President Joe Biden is not particularly concerned about the proceedings. During his speech yesterday, Biden promised that by the end of the summer, the United States will have enough of the COVID-19 vaccine to vaccinate 300 million Americans. Biden also visited the Viral Pathogenesis Laboratory where the COVID-19 vaccine, manufactured by Moderna, was developed. So far, more than 26 million vaccinations have been given in the first three weeks of Joe Biden's tenure as president. One of Biden's campaign promises was to actively oppose the coronavirus. The current US president also announced yesterday that the US has received contractual commitments from Moderna and Pfizer to deliver 600 million doses of the vaccine by the end of July, which is a month earlier than originally expected.
As for yesterday's figures, attention was drawn to a report from the US Department of Labor, which recorded a decrease in applications for unemployment benefits in the United States. According to the data, for the week ending February 6, the number of initial applications for unemployment benefits fell to 793,000, which is 19,000 less than the previous week's revised level of 812,000. Economists had expected the number of referrals to fall to 757,000. The moving average also fell to 823,000, down 33,500 from the previous week's revised average. The measures taken by the US authorities to support the labor market are bearing fruit, but they are not enough, as the further reduction in the number of new applications for unemployment benefits will occur more slowly.
The report on housing prices in the United States was ignored by traders. Low mortgage interest rates for such a long period of time have led to the highest prices and the fastest growth rates in history. The median price of a single-family home rose 14.9% to $ 315,000 in the fourth quarter of 2020 - the biggest increase since 1990.
As for the technical picture of the EUR/USD pair, the bulls are targeting a large resistance level in the area of 1.2150. Only a break in this range will provide the market with an influx of new major players betting on further strengthening of the euro in the short term. The target will be a fresh high of 1.2190, the breakout of which opens a direct road to 1.2230. In the case of a decline in the trading instrument, I advise you to count on support in the area of 1.2110, but a larger level is visible only in the area of 1.2070, where the bulls will try to build the lower border of the ascending price channel from February 4.
Quarterly data on UK GDP, industrial production and foreign trade will draw attention this morning. The UK economy is forecast to have grown by 0.5% in Q4, after growing by 16% in Q3. Industrial output is expected to grow by 0.5%, and the UK's trade deficit in December will be 15 billion pounds, compared with a deficit of 16.01 billion pounds in the previous month.
As for the technical picture of the GBP/USD pair, the clear focus of buyers will be to protect the support of 1.3785. If the bulls manage to keep the trading instrument above this level after the GDP data, they can expect a return to the resistance of 1.3820, and then an update to the annual maximum of 1.3870, which they failed to get beyond yesterday. A break of 1.3785 will increase the pressure on the pair. In this case, the nearest major support levels will be seen in the area of 1.3730 and 1.3680.
The material has been provided by InstaForex Company - www.instaforex.com