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The US Federal Reserve published its financial stability report yesterday, which once again showed an uncertain future amid the persistent coronavirus pandemic. From the report, it is clear that if the pandemic remains uncontrolled and continues longer than projected, economic recovery will be seriously affected. However though, quite a lot also depends on how quickly the COVID-19 vaccine will spread.
Against this background, pressure on the European currency returned, which in turn led to the decline of the EUR / USD pair in the market. Since demand for the euro largely depends on the dynamics of economic recovery, a slowdown in growth unequivocally decreases its appeal on traders. To add to that, economic problems have already begun in the eurozone, and this may be confirmed by today's data on business sentiment in Germany and the eurozone. A rather large drop is expected in the indicator for November this year, which will severely affect all outlook as well. And if the lockdown in Europe lasts more than one month, there is a high chance that GDP will have a larger-than-expected slowdown or contraction this 4th quarter.
Meanwhile, back to the COVID-19 pandemic, Pfizer Inc. and its partner, BioNTech SE, announced a breakthrough in their development of a vaccine, after successfully completing a third test. According to them, the vaccine may be available earlier than expected, and may be approved for widespread use, thanks to the remarkable results of the research. Pfizer said it plans to request an approval for sale by the end of November, if the data prove its safety.
On to other news, a rather important step was taken by the European Union yesterday, when it announced that it intends to impose duties on Boeing planes and other US goods. In fact, the trade differences between the US and the EU have subsided a bit during the outbreak of the coronavirus, as well as after Donald Trump's administration switched to a trade war with China. But since the World Trade Organization has sided with the EU and allowed it to impose duties, the EU is expected to introduce such to the US today.
To add to that, back in 2019, the United States received a similar permit, thus, it introduced duties on European goods, including Airbus SE aircraft, which to $ 7.5 billion. Now, for the EU's duties to the US, all Boeing models will be subject to a 15% duty, while 25% will be imposed on agricultural raw materials and processed agricultural products.
With regards to statistics, the Conference Board published a report on employment trends yesterday, revealing a good increase in the index for October, but also indicated a slowdown in job creation. The data said the index rose to 97.58 points against 96.33 in September, which is in line with the labor market report from the US Department of Labor last Friday. Its report said jobs increased by 638,000 in October, and the unemployment rate dropped to 6.9%.
As for the technical picture of the EUR / USD pair, a sharp drop below the level of 1.1860 will indicate a rather negative dynamics for the pair in the near future. Much will depend on the reports regarding the European economy today, because if they disappoint, there is a high chance that the quote will break below the support level of 1.1800. Such a scenario will lead to a bear market, which would push the euro to the lows of 1.1740 and 1.1660. In addition, the bullish trend will only resume after the bulls gain control of the resistance level of 1.1860, as only such could lead to a return to the monthly highs of 1.1915, as well as to a movement towards 1.1970.
GBP / USD
It seems that the British pound intends to climb up in the markets amid the publication of reports regarding the state of the UK labor market. Apparently, traders are already fed up relying on the news over Brexit, therefore, they intend to concentrate on the new lockdowns and the coronavirus pandemic. These factors are the ones that will set the tone of the Bank of England's decision on interest rates, because if the situation with the pandemic does not improve, there is a high chance that the Central Bank would set key rates into negative levels, which will put a lot of pressure on the British pound. And, having a Brexit without a trade deal will only add to this vinaigrette of bad news and data.
In any case, the upward potential of the pound will be limited if the UK and the EU fail to reach a trade agreement. The COT reports for the past weeks already indicate sharp reductions in the volume of long positions and an increase in short ones, which suggests that tensions are already increasing over the Brexit issue. Longs have already fallen from 31,799 to 27,701, while shorts rose from 38,459 to 38,928. This led to the net position dropping to -11,227, from -6,660 a week earlier, which means that the bears have retained their control and advantage in the market.
As for the technical picture of GBP / USD pair, the further direction of the pound will depend today on the data for the UK labor market, because if they turn out to be worse than the forecasts of economists, the pound will immediately undergo a strong downward correction. A breakout from the support level of 1.3155 will most likely trigger large sell-offs in the GBP / USD pair, mainly because many count on the renewal of support at 1.3094. If the bears manage to break below this range, the quote will test the lows 1.3030 and 1.2970. But if the bulls manage to bring the pound to the 32nd figure, the quote has a chance to move up to the highs of 1.3260 and 1.3340.
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