Yesterday's data on the US economy weakened the position of the US dollar against the euro and the pound, as conflicting signals on the pace of recovery in the labor market and growth in income and expenses led traders to some confusion. The rise in jobless claims suggests that the labor market has indeed turned around, as a result of the persistent increase of COVID-19 cases in the United States. In any case, the second estimate of US GDP for the third quarter remained unchanged, although recent data indicated a stronger economic recovery.
News that Janet Yellen has been nominated as the new Treasury Secretary also added pressure to the dollar. Many assume that Yellen will continue closer coordination with the US Federal Reserve next year, eliminating the recent tensions between Jerome Powell and Steven Mnuchin. Once she is approved by the US Senate, Yellen will face the challenge of how to proceed with the Fed's current emergency lending arrangements. Just recently, outgoing Treasury Secretary, Steven Mnuchin, announced that the programs would be closed by the end of the year, raising financial concerns in many American households.
Therefore, the technical picture of the EUR / USD pair indicates that the quote has to break the level of 1.1930 first before the euro will be able to move towards the 20th figure. A breakout of 1.2008 will bring the pair towards 1.2060 and 1.2110. But if the quote moves below 1.1880, the EUR / USD pair will collapse to 1.1840, and then head towards new weekly lows around the 18th figure. However, given the fact that Thanksgiving is celebrated today in the US, market volatility is unlikely to be that high.
In another note, the US Fed released its November protocol yesterday, which discussed the significant risks the COVID-19 pandemic poses to the US economy. Most executives agree that the pace of recovery in the labor market has slowed down, thus, low- and middle-income households will need to sharply cut spending in the future, especially in the absence of fiscal support from the authorities. The minutes also indicated that Fed officials are concerned that the observed rise of coronavirus infections this November could undermine the current pace of recovery, while household consumption will remain stable until the end of the year, thanks to a savings cushion. Not surprisingly, they consistently mentioned the need for additional fiscal support, without which households could face significant difficulties.
Aside from that, the Fed hinted that its monetary policy will most likely remain unchanged until the end of the year, while asset purchases will continue at its current pace in the coming months. However, many believe that there is a need to strengthen the leading indication of asset purchases fairly soon.
On the topic of economic statistics, data on US consumer spending was published yesterday, which indicated a 0.5% increase in the index for October. Income, on the contrary, decreased by 0.7%, all due to the slowdown in economic recovery.
Consumer spending also continues to present signs of a slowdown, thus, many believe that the only thing that can stimulate their increase is Black Friday and Christmas sales. Much will depend, however, on the restrictions that may be adopted as a result of the second wave of the coronavirus pandemic.
A number of other economic indicators also remained mixed. For example, US consumer sentiment has deteriorated again after seeing a record increase in the number of new coronavirus infections. According to the University of Michigan, the final consumer sentiment fell to 76.9 points in November, while the preliminary value was at 77 points. Economists had expected the index to remain unchanged from the preliminary reading.
As for the index of current conditions, the figure rose to 87.0 points in November, but the index of expectations fell to 70.5 points from 79.2 points in the previous month.
Sales in the US primary housing market also decreased, even though the availability of credit and zero interest rates continue to support the sector. The decline seems to be seasonal, therefore, according to the report published by the US Department of Commerce, sales in the primary housing market fell by 0.3% in October, amounting to 999,000 per year. The Economists had expected it to rise to 973,000 homes a year.
Meanwhile, jobless claims in the US increased, as reported by the US Department of Labor. The latest data said initial applications filed for the week of November 15-21 jumped by 30,000 to 778,000, while economists expected a figure of only 733,000.