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After the Democratic Party published details of a new bill proposed by Joe Biden to combat the coronavirus on Monday, the US dollar lost ground against the euro and the British pound. We are talking about a $1.9 trillion aid package, which, according to Democrats, the economy so urgently needs. Against this background, the US stock market has already recovered all the losses that were observed last week, and went on to update historical highs. The British pound also hit new highs, while Labour is pushing for more programs to support the UK economy.
The new bill proposed by Joe Biden affects all economic and social spheres, from education to financial services and the labor market. But it was not the details of the bill that weakened the dollar's position, but the information that the Democratic Party, immediately after approving this aid package, was already aiming for another round of stimulus payments in the coming years. It is expected that a vote on the new bill will be held in the near future, after which it will go to the Senate, where Democrats and Republicans have an equal number of votes. The expectation is that Vice President Kamala Harris will vote for the new aid package and launch a more expedited procedure for its adoption. The new project provides for a $1,400 payment to citizens with a total annual income of up to $75,000, or to couples earning less than $150,000 for two.
Eligibility for payments will depend on income for 2019 or 2020. The account also provides a $1,400 payment to dependent adults and children. Also, the unemployment benefits will also be increased. The bill provides for an increase in the weekly federal benefit from $300 to $400. The payments will be valid until the end of August 2021. Benefits for the self-employed will also be expanded. As for the additional benefits, the new president Joe Biden recently announced that he is preparing a package of measures to reduce tax payments to families with children. The decision to increase child benefit payments was also supported by a number of representatives of the Republican Party.
From yesterday's fundamental statistics, I would like to highlight several reports. Data from Destatis on the volume of industrial production in Germany was clearly disappointing, as the indicator was worse than economists' forecasts. Industrial production remained unchanged in December 2020 after rising 1.5% in November. Economists had forecast growth of 0.3% in December. On an annualized basis, the decline in industrial production was 1.25%. It pulled down the overall production indicator in the manufacturing sector, where the reduction was 8.5% compared to 2019. Another report from Sentix on Monday indicated that eurozone investor confidence fell in February 2021. This was due to a slowdown in the rate of vaccination, which affected both the assessment of the current situation and the expectations of the economic outlook. According to the data, the index of investor sentiment fell to -0.2 points in February after rising to 1.3 points in January this year. Economists had forecast the index to rise to 1.9 points. The current situation index fell to -27.5 points from -26.5 points in January. The expectations index fell to 31.5 points from 33.5 points.
As for the technical picture of the EURUSD pair, after yesterday's breakout of the 1.2050 resistance, the mood among buyers of risky assets has become much better than it was before. A break of 1.2050 suggests that the bullish momentum may continue further, with the next target being a maximum of 1.2090. Going beyond this range will certainly lead to a more powerful movement of the euro up to the area of 1.2130 and 1.2180, where the market will see profit-taking on long positions. It will be possible to talk about the return of pressure on the European currency only after the sellers push the trading instrument back under the support of 1.2050. This will lead to the demolition of a number of stop orders of the bulls and to a larger movement of the trading instrument in the area of the lows of 1.2000 and 1.1950.
GBP
The British pound is not experiencing any problems with growth, even against the background of warnings from the UK Labour Party, which said that it is necessary to extend state aid programs in the fight against the coronavirus pandemic, which end in March this year. If this does not happen, the economy could lose up to 50 billion pounds. The argument was that many firms were running out of cash, and therefore needed to provide additional liquidity. The party has already called on UK Finance Minister Rishi Sunak to act now, rather than wait until March 3, when a budget approval meeting will be held, at which benefits and various programs to support business and the labor market are expected to be extended. Labour expects that after the expiration of the support programs, English businesses will immediately face additional costs of about 50 billion pounds, which will blow a hole in the economy.
Lucy Powell, the party's spokeswoman, said yesterday that a smarter scheme to support businesses and businesses was needed, which would save jobs and provide a faster path for the UK economy to recover. As expected, the lifting of quarantine measures will not happen until March of this year, ergo, it is necessary to think about how to further protect the employment market, which is unlikely to show growth at one point. Representatives of the Labour Party also reminded the Finance minister about the value-added tax, which is about 34 billion pounds. After the cancellation of the benefits, it must be paid by March 31, 2021, which only increases the debt burden on enterprises and companies.
The British pound was disregarded by today's report from the British retail consortium trade, which declined for the first time since the spring of last year. The restrictions in place since November 2020 have caused more damage to retailers than expected. Total sales decreased 1.3% year-on-year in January 2021 compared to 2020, when sales increased 7.1%. The current quarantine measures undermine consumer confidence and force buyers to rein in their spending, especially on clothing and shoes.
As for the technical picture of the GBPUSD pair, going beyond the resistance of 1.3760 provoked a number of active purchases from major players, which strengthens the position of the British pound and leaves a fairly high probability of continuing growth in the future. Buyers are now looking at the resistance at the base of the 38th figure, a break of which will surely lead to a test of new highs in the area of 1.3840 and 1.3880. It will be possible to talk about the return of pressure on the trading instrument only after the bears regain control of the level of 1.3750. In this scenario, it will be possible to observe a repeated decline of the pair to the lows of 1.3720 and 1.3680.
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