FX.co ★ EURUSD and GBPUSD: Poland and Hungary agreed on a compromise with Germany, and the UK offered a proven way to patch budget holes for 2020

It seems that the world's leading central banks will launch a new wave of bond purchases in 2021 as part of a stimulus program to cope with the consequences of the pandemic. And this comes amid growing claims that the once powerful monetary policy is losing its ability to stimulate the economy.

According to the data, the US Federal Reserve, the Bank of England, the Bank of Japan, and the European Central Bank have spent $ 5.6 trillion on quantitative easing this year alone. The ECB is expected to increase its purchase plans by another 500 billion euros at tomorrow's meeting on Thursday. It is no secret that research departments of central banks regularly provide reports on how quantitative easing affects the stabilization of the situation in the markets and whether this has contributed to the growth of inflation. However, recently, investors have much less confidence that this method of monetary stimulus, which has been used for quite a long time and which performed particularly well during the global financial crisis in 2008, will also contribute to the recovery of the economies of developed countries as it was before. Investors are even more concerned about how bond yields will continue to behave. After all, the more it falls, the higher the risk of unforeseen consequences. And if the aggressive monetary policy of recent years has exhausted itself, then it makes no sense to rely on it in the future.

However, as long as the economy is in a zone of turbulence, no one will abandon the methods that work "here and now". It is too early to guess what damage will be done to the economy in the long term. As the US experience has shown, after the 2008 crisis, no one will be in a hurry to deal with the overhanging debts, especially in the case of the Fed.

The news that Poland and Hungary agreed to a compromise with Germany to unblock the EU budget of $ 2.2 trillion did not provide strong support for the euro, as no one doubted the implementation of such a scenario. The compromise reached, just before the start of the EU summit, put an end to a standoff in which Budapest and Warsaw threatened to block the EU's 750 billion euro recovery fund and the EU budget for 2021-2027. Poland Deputy Prime Minister Jaroslaw Gowin said today that an agreement has been reached with Germany, which will now be submitted for study by the rest of the bloc. The deal could be completed by Friday, he said. The deal was also confirmed by a senior Hungarian official. The diplomat said officials are waiting for final confirmation that an agreement has been reached. Details of the deal reached were not disclosed.

As for today's figures, which were published in the German economy, they did not particularly affect the euro. As it became known, the recovery of German exports continues, although its pace has slowed compared to the summer period. Given the repeated partial lockdown of the German economy, it is not surprising that export growth has slowed. However, those areas of production that are not focused on services continue to perform well without disrupting supply chains.

The report shows that German exports in October this year increased by 0.8% compared to September, while economists had forecast growth of 1.4%. In October, compared to September, imports increased by 0.3%. Germany's trade surplus in October was 18.2 billion euros, against economists ' forecast of 17.7 billion euros.

Let me remind you that yesterday a report was released indicating that in the 3rd quarter, the Eurozone's GDP grew by 12.5% compared to the 2nd quarter, and not by 12.6%, as the first estimate suggested. In the 3rd quarter, compared to the same period last year, the reduction was 4.3%, and not 4.4%, as previously reported.

As for the technical picture of the EURUSD pair, much will depend on the decisions that will be made today on Brexit. Breaking the annual highs around 1.2177 will lead to the formation of a new bull market that can throw the trading instrument to the highs of 1.2260, 1.2340, and 1.2420. If the pressure on risky assets returns due to the failure of a trade deal, then a break in the support of 1.2080 will quickly dump the trading instrument to the lows of 1.1990 and 1.1880.

GBPUSD

While all the attention of traders is shifted to the dinner of Johnson and Leyen, after which the official part of the negotiations on the Brexit deal will begin, an interesting report on the UK tax system was published in the media, with which you can close a significant deficit resulting from the coronavirus pandemic.

According to a group of experts leading the study, the introduction of a one-time 5% wealth tax in the UK will help raise more than 260 billion pounds ($348 billion). This will significantly help to patch up the holes in the state budget affected by the coronavirus. The independent property tax Commission has called for a levy of 1% a year for five years on citizens whose wealth is estimated at 500,000 pounds or more. At the same time, it is noted that about 8 million people in the UK would suffer from such an additional tax.

The debate over wealth taxes is gaining momentum as the government considers how to address its financial situation. The office for budget responsibility predicts that borrowing will reach almost 400 billion pounds in the current financial year, which is, for a second, almost a fifth of the economy. The study said that the current budget deficit is the biggest since a peaceful time.

As for the technical picture of the GBPUSD pair, it is not entirely correct to make any assumptions about where the British pound will move after the meeting since it is unlikely that anyone will be able to predict the outcome of the meeting. It will be possible to talk about the resumption of the bull market only after the breakout of the highs of 1.3440 (which the pound buyers are currently trying to do) and 1.3490. This scenario will open a direct road to the area of 1.3605 and 1.3700.