The US currency continues to gain momentum, against the background of the political conflict that has emerged around the almost two-trillion dollar package of assistance to the US economy. Republicans and Democrats still can't agree on a common denominator regarding the cost of the bill. In fact, the parties continue last year's dispute over this issue-politicians discussed it for six months (from May to December), until they accepted a compromise 900-billion aid package.
At the moment, the political balance of power has changed: the Democrats control the House of Representatives, have 50+1 votes in the Senate and enjoy the support of the White House, the owner of which was Joe Biden. Actively lobbying for the issue of additional fiscal stimulus and the Minister of Finance Janet Yellen. In other words, the Democrats' support group is quite powerful. And you could not worry about the approval of a resonant bill in both houses of Congress if not for one but: at the moment, the Democrats need a supermajority – that is, 60 votes of senators out of 100. Let me remind you that the Democrats currently have 50 votes in the upper house of Congress: the Vice President of the United States Kamala Harris has the decisive vote with the simple support of the majority.
Initially, Biden expected to get the support of the Republican Party on this issue. But the Republican senators have developed their own version of support for the economy, which is three times less - $618 billion. The negotiations at the White House did not lead to anything: the US president could not convince the Republicans of the advantages of his bill, and the Republicans, in turn, did not convince Biden.
The current situation forced the Democrats to go roundabout: it became obvious that Biden's "Plan to save America" would not receive bipartisan support. Now representatives of the Democratic Party have decided to use a legislative tool that allows the initiative to be adopted by a simple majority of votes. Just today, the Speaker of the House of Representatives Nancy Pelosi and the head of the Democratic majority in the Senate, Chuck Schumer, presented a budget resolution – this is the first step in the procedure of the so-called budget "reconciliation". If this procedure is approved, then the Democrats, in fact, will open the way to the approval of their bill worth $1.9 trillion, since in this case they will need only 51 votes, which they have.
The general nervousness associated with this situation supports the dollar, which is traditionally used as a protective asset. By and large, this is the first political battle between Democrats and Republicans after the US presidential election. The positions of the representatives of the Republican Party in this confrontation look obviously losing – but the uncertainty factor itself plays in favor of dollar bulls. Additional support for the greenback is provided by the yield of 10-year treasuries. The indicator is growing for the fourth consecutive session, reaching 1.12% today – this is almost a two-week high.
The European currency, in turn, is not able to resist the strengthening of the greenback. The data published today on the growth of pan-European GDP, on the one hand, came out in the green zone, but on the other hand – showed that the region's economy is still on the verge of a double recession. So, in the fourth quarter of 2020, the volume of GDP decreased by 0.7% on a quarterly basis, although most analysts expected a more significant decline – to -1.2%. At the same time, the record growth of the third quarter was revised upward (+12.5% instead of the previous value of 12.4%). In annual terms, the key indicator decreased by 5.1% instead of the projected decline of 5.5%.
It is worth noting that traders of the EUR/USD pair completely ignored this report, as they were absorbed in the general hegemony of the greenback. But the euro was able to show character in cross-pairs, although only for a short time – the reverse dynamics was observed during the US session: the euro actively lost the positions it won during the day.
Thus, long positions on the euro-dollar pair look risky now. Just yesterday, there was a chance that the EUR/USD bears would not be able to break through the support level of 1.2050 (where the lower limit of the two-week flat range was). But the onslaught of dollar bulls redrew the technical picture for the pair. At the moment, the bears are at the bottom of the 20th figure, in the area of the important support level of 1.2000, which coincides with the lower line of the Bollinger Bands indicator on the daily chart. If the downward movement continues, then the next stop (from a technical point of view) will be the 1.1940 mark – this is the lower limit of the Kumo cloud on the weekly chart. But here it is also worth considering that the downward momentum is currently beginning to fade, so it is not at all a fact that sellers have enough strength to push through the psychologically important level.
For this reason, it is best to take a wait-and-see position on the pair at the moment - if the bears float at the bottom of the 20th price level, then traders will take profits en masse, afterwards buyers of EUR/USD will become more active. Otherwise, we can talk about the first signs of a trend reversal. In other words, the pair is now at a crossroads and near a fairly strong support level at the same time. If the pendulum does not swing towards the downside within the next day, the pair will mark the price bottom, with all the consequences that follow from this.