Perhaps, the main news yesterday was the US budget plan for 2021, which was presented by the White House. It presumes spending of $ 4.8 trillion, as well as GDP growth of 3.1% in 2020 and 3% in the 2021 fiscal year. In addition, US President Donald Trump also proposed reducing the budget deficit to $ 966 billion in the 2021 fiscal year. Meanwhile, defense spending is expected to reach $ 741 billion in 2021, and non-defense spending is expected to reach $ 593 billion.
The course established by the US President for the upcoming decade is quite interesting. However, much will depend on the development of military situations the United States is constantly involved in. Most likely, in 2020, activity in this direction will decrease, as one of the promises of the current US President at the last election was to reduce military activity as well as withdraw American troops from hot spots. It is unlikely that the presidential administration will go against promises, especially in an election year.
Meanwhile, yesterday's report on the US employment trend index helped the US dollar continue strengthening against risky assets, particularly the European currency. According to the Conference Board, the employment trends index rose to 110.24 points in January 2020, from its 108.84 points in December. The index added 0.7% in just 12 months. This indicates not only an increase in jobs, but also a good start to 2020.
On the other hand, the Fed representatives who spoke yesterday did not tell the market anything new. According to Fed spokeswoman Mary Daley, a very low unemployment rate does not automatically mean that the labor market is full, as the drop of the unemployment rate to very low levels has greatly benefited the economy. At the same time, Daley expects inflation to exceed its target level of about 2.0%, and believes that the Fed's chosen direction is correct.
Similar statements were made by the Federal Reserve Bank of Philadelphia President Patrick Harker. He noted that since the economy is in good shape, the US Central Bank should keep interest rates unchanged. He also claimed that the Fed needs to gather more data if it plans to make changes regarding the interest rates. At the same time, Jerome Powell, Federal Reserve's Chief Executive, has a similar approach and is scheduled to speak today. As for forecasts on US GDP growth, Harker expects them to return to the 2.0% mark, with the unemployment rate going below 4.0%.
As for the technical picture of the EUR/USD pair, the further decline is still limited to the support level of 1.0905. The breakout of the said level will open a direct road to the lows in the area of 1.0875 and 1.0840. The upward correction that many expect in the near future will also be limited to the first resistance of 1.0940, and the larger sellers will only show themselves after the high of 1.0970 is updated.
GBP/USD
The British pound is waiting for an important report on the UK economy, which is likely to have shrunk in the 4th quarter of 2019. The UK GDP is expected to have fallen by 0.1% from the previous quarter, after growing by 0.4% in the 3rd quarter. The probability of a recovery in activity in December 2019 after the general election will have a positive impact on the overall indicator, but the industrial production, services and consumption will certainly show weakness.
From a technical point of view, the support level of 1.2890 is very important for pound buyers. The rebound from this level will form the new border of the upwards channel, which will open a direct route to the area of yesterday's high at 1.2940. Meanwhile, the breakout of which will lead to the demolition of the stop orders of bears, and a larger reconstruction of the trading instrument in the area of 1.3000 and 1.3050. A weak report on the economy may push the pound below the support of 1.2890, which will drop the pair to the lows of 1.2830 and 1.2770.
Despite yesterday's attempt to break through and consolidate at regular monthly highs, the USD/CAD is now gradually declining. The Canadian dollar is gaining ground against the US dollar, who is trying to gain a foothold below the level of 1.3300.
The current real estate market data was good news for the economy. The activity on the construction of multi-apartment buildings has increased, and the rate of new home mortgages grew as well. According to the report of the Canadian Mortgage and Housing Corporation, new home mortgages increased by 8.8% in January 2020 and amounted to 213,224 homes per year, as compared to 195,892 in November. Moreover, the total number of building permits in Canada increased by 7.4% and amounted to 8.67 billion Canadian dollars, as compared to the same period the previous year, whose total number of permits fell by 1.8%.