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Markets reacted nervously to the lack of progress in negotiations between the UK and the EU. Nevertheless, the pound's pullback was not too deep, and the good news is that the chances of signing an agreement still remain, as both sides draw to lose more from the lack of a deal.
The second major uncertainty is US financial incentives. Bipartisan negotiations on the $ 908 billion package are in process and both parties are working out deals desperately. In turn, the Congress may consider a bill to temporarily fund the government for one week to give negotiators more time.
The need to stimulate the US economy directly follows from the basic ratios known since the time of Fisher. According to the formula he discovered, the total volume of goods and services produced is directly proportional to the product of the money supply and the speed of its circulation. In other words, the higher the rate of money turnover, the busier the economy.
It has been well-known that the speed of money circulation in the US is slowing down. The MZM money supply reached its maximum speed in 1981. But after the energy crisis, the MZM turnover began to decline steadily. The same fate happened on narrower monetary aggregates, M2 peaked during the 1997 Asian crisis, while M1 peaked relatively recently – Q4 2007, just before the mortgage crisis.
The COVID-19 pandemic has led to large-scale restrictions in the economy, and the speed of money circulation has collapsed. To support the economy, it is necessary to increase the amount of money supply, otherwise a strong drop in GDP and a sharp slowdown in economic activity are inevitable.
So, the confrontation between Democrats and Republicans on this issue really only concerns who will control distribution and how much will it be closer to profit, not whether incentives are needed at all. In any case, the US economy will collapse without the infusion of next trillions dollars.
Today is an important day for resolving the issue of the US election results. States must decide on electors 6 days or more before the Congressional vote on December 14. News that a state has not passed the legal procedure for counting votes can have a strong impact on market volatility.
The dollar is still under pressure, so there is no reason to wait for a reversal.
NZD/USD
The New Zealand dollar has instantly updated to a two and a half year high, which increases the probability of a correction or at least consolidation. Nevertheless, there are no serious reasons for a reversal yet.
According to the CFTC report, the net long position has grown to 640 million. The trend looks stable and the estimated fair price continues to rise.
The growth of NZD is largely due to the lack of commitment by central banks to end the stimulus period. On the contrary, financial conditions remain favorable, so the overall weakness of the US dollar and the direction of global currency flows will continue to push the New Zealand dollar upwards, creating more stress for exporters.
The nearest support zone is 0.6940/60. In case of a downward pullback, buying can be considered in order to update the recent high of 0.7098. Moreover, the target of 0.74 may be reached before this year ends.
AUDUSD
Australia's business conditions and confidence rose in November, indicating a rapid economic recovery as restrictions eased and state borders opened. At the same time, other leading indicators improved during the month: capacity utilization rose significantly, while orders were growing.
The employment index is lagging behind the general trend, which has not fully recovered since the pandemic started. Nevertheless, we have positive forecasts for the 4th quarter.
The trend is in favor of the AUD/USD growth in the futures market. The estimated fair price is sharply above the long-term average and is directed upwards. Thus, the upward trend of the AUD/USD pair continues.
The Australian dollar managed to close above the resistance level of 0.7416, but growth slowed down. There are no particular reasons for a downward reversal, so rising is still expected to continue in the near future. The medium-term target is 0.7640, from which it is logical to buy with a pullback to the support 0.7340/50.
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