The chances that the US Congress will agree on a new stimulus package even before Christmas will get higher, if the inflation and employment data worsens. The Philadelphia Fed index fell to its lowest since May due to a strong drop in new orders and employment. The number of initial unemployment claims rose to 885 thousand. Stabilization occurred at a much higher level than before the pandemic, and much indicates that the number of claims may exceed 1 million in the next few weeks.
Still, U.S. stocks ended the day higher as speculation mounted that the political will to conclude a $ 900 billion fiscal stimulus deal remains very strong. Previous agreements expire today, and to prevent a shutdown, lawmakers will either make a deal today, or pass a temporary agreement to win a few more days for fierce negotiations.
In any case, the US dollar remains under pressure and it is unreasonable for it to increase. The demand for defensive assets may rise in the coming days.
EUR/USD
December's composite PMI Markit rose to 49.8p in the eurozone, which was better than expected. The eurozone economy looks better-than-expected this month and is close to stabilizing after plunging into serious recession in November amid the resumption of isolation measures from COVID-19. As a result, the decline in GDP in the 4th quarter will probably be less harsh.
The euro remains bullish, reaching the resistance level of 1.2256. The chances of a traditional Christmas rally are getting higher. At the same time, an attempt to reach the resistance zone 1.2520/50 is quite likely in the coming days, since several events are expected at once that can boost euro's growth. Such events are namely the end of the Brexit negotiations, wherein both sides will benefit from the agreement and the likely launch of a new stimulus package in the US.
GBP/USD
There was a telephone conversation between the British Prime Minister Mr. Johnson and EU Commission President Ms. Ursula von der Leyen, and in the last minutes, von der Leyen said that significant progress has been made on many issues. Thus, the deal seems increasingly likely, but the formalities may take a little more time.
The latest macroeconomic data looks mixed. The employment report was generally better than expected, primarily in terms of wage growth, which exceeded expectations. At the same time, wage growth should theoretically lead to an increase in inflation, since the more people earn, the more they spend and this puts pressure on prices.
However, reporting that reflects the dynamics of prices looks much worse. Novembers' retail prices declined by 0.3% instead of the expected growth of 0.2%. In the negative producer prices, the growth of consumer inflation slowed down. There are many strangeness associated with this indicator, since April CPIH inflation indicators have been built using a new methodology that considers the fight against coronavirus' consequences. The NIESR Institute has proposed CPILW trial statistics to measure inflation using rough estimates of spending weights during the lockdown, but practice has shown that the result is the same no matter how you measure it – consumer spending is falling, and a new incentive program is in progress.
The Bank of England avoided any new measures at Thursday's meeting, leaving monetary policy unchanged, citing an "unusually uncertain" outlook. Apparently, the BoE is waiting for the outcome of negotiations with the EU on a trade agreement and more clarity with the Fed's policy and new incentives. However, the indicated bank will still have to act right away, which will limit the pound's growth in the long term.
Technically, the GBP/USD pair has updated its high. We still have a strong impulse, since Brexit's result has not been announced yet. Profit-taking will not occur until the signing of the agreement is announced, so growth is likely to continue. If the agreement is announced today, the impulse up to 1.40 is not excluded.