On Friday evening, news broke that US President Donald Trump had approved a revised US economic stimulus proposal that he had rejected last week.
However, this was not really a surprise at all because on Wednesday, Trump already took back his decision on postponing negotiations over the long-disputed coronavirus relief bill, saying that he was ready to sign a decree, but on condition that a separate project is sent to him on issuing $ 1,200 to Americans. He also drew attention to the need to support airlines, to which he plans to allocate about $ 25 billion (this led to a sharp rise in shares on the stock market), and to small businesses, where he plans to send about $ 135 billion under the payroll protection program.
Ergo, on Friday night, economic adviser Larry Kudlow said that the US president approved an adjusted stimulus package, which includes an airline support program, PPP and small business assistance. Kudlow said that Trump expressed a desire to negotiate with the Democrats on this issue, but it is not known yet how the party reacted to it. Nonetheless, traders have already actively reacted to the news by buying risky assets.
Unfortunately, this development is unlikely to please the European Central Bank, which has repeatedly drawn attention to the high rate of the euro, which is hurting the economic recovery and inflation. This massive rise of the euro may soon become an important factor in deciding on the ECB's monetary policy, as its rapid strengthening could trigger a larger expansion of the bond buying program, as well as a further decline in the deposit rate. Shifting the rates to a negative level has also already been considered by the ECB, as informed by chairman Christine Lagarde last week.
Thus, for the technical picture of the EUR / USD pair, only the level of 1.1830 keeps it from rising too much in the market, but a breakout from which could lead to automatic triggering of sell stop orders, as well as a new jump of the trading instrument to the highs of 1.1870 and 1.1915. The key target of the bulls remains the psychological mark in the area of the 20th figure, but if the pressure on the euro returns earlier this week, the pair may decline towards the support level of 1.1780, and then to a quote of 1.1735.
With regards to statistics, one pleasing report was the latest data on Italian industrial production, which grew 7.7% in August, a bit higher than its 7.0% record in July. Of particular note is the sharp rise in activity in the manufacturing industry, as well as in the production of consumer goods. Economists had expected the index to only grow by 1.0%
A similar indicator in France was also published, however, it indicated a slower pace of growth than the previous month. The report said that industrial production only rose 1.3% in August, while in July it increased by 3.8%. Economists forecasted the increase to be 2.1%.
Meanwhile, in Germany, which is the locomotive of the European economy, industrial production fell by 0.2% altogether.
GBP / USD
As for the United Kingdom, it seems that the government and the Bank of England will have to take additional measures to stimulate the economy, because according to the statistics released last Friday, UK GDP only grew by 2.1% in August, lower than the forecasted 4%. In total, the GDP only rose 21.7% from the low it saw at the height of the coronavirus pandemic, and in addition, it still lacks 9.2% to return to pre-crisis levels. It is precisely this 9.0% that will be hard to get now, considering the ongoing economic slowdown.
Aside from that, an increase in unemployment is expected to be recorded this week, which is not very good news for the British pound.
The Bank of England has already been considering shifting the rates into a negative level, in order to placate these issues.
Regardless, the British pound continues to climb up in the markets, and now it is already close to moving above the resistance level of 1.3050. Its success will lead to a larger rise to levels 1.3110 and 1.3180. And even in the case of a downward correction, support will be provided by the level of 1.2990, which coincides with the lower border of the upward channel formed at the end of last week. A breakout around this area will not have much impact on the market as well, as only a return to a quote of 1.2925 could trigger a decline towards the levels 1.2850 and 1.2750.