The European currency retreated slightly from its highs yesterday, and did not manage to reach the level of 1.1919, which it has been striving for all this week. This is mainly because of the sudden dispute over the EU budget, which, even if not as serious at first glance, still impacts negatively.
Yesterday, Poland and Hungary blocked the draft EU budget for 2021-2027, as well as the € 750 billion economic recovery fund which was set up this summer. Poland said it disagrees on a number of key issues, but many economists say that if the EU fails to agree on the issue of single government bonds in the eurozone, the main burden of pulling the weakening European economy will fall on the shoulders of the European Central Bank, which, although coping with its responsibilities, is almost at its limit.
It is unlikely though that Poland and Hungary will resist for a long time, and there is a high chance that such a move is only to force the EU leaders to agree on more favorable financial terms at the summit tomorrow. To add to that, both Poland and Hungary need additional funding, so it is not in their interests to stop the whole aid package.
In that regard, the EUR / USD pair halted its growth yesterday just when it reached the area of the 19th figure. Only a breakout of this range will resume the upward move towards 1.1930 and 1.1970, but the main target is the area of the 20th figure. In the event of weak reports on the European economy, particularly on inflation, the pressure on risky assets may increase. In such a case, the quote may break below 1.1845, which will quickly push the euro to the bottom of the 18th figure, after which it will head to the level of 1.1745.
On the topic of economies, the first signs of a slowdown was observed in the United States, and this is seen in the latest data on retail sales. Its figure, although increased as well in October, shows that growth rates have practically slipped to zero, which raises a lot of questions about the pace of purchasing activity. It seems that the persistent rise of COVID-19 infections in the US is negatively affecting this area.
The report published by the US Department of Commerce said retail sales rose 0.3% this October, while economists had expected it to be 0.5%. The sharp jump was again because of Internet sales, which grew by 3.1% compared to the previous month.
Industrial production also grew in the US, but this time the data is almost the same as the forecasts of economists. The increase continued because of good activity in the manufacturing sector, which is not so affected by the coronavirus pandemic. The report published by the US Federal Reserve said the index of industrial production, which consists of manufacturing, mining and utilities, rose 1.1% in October, while economists had projected the indicator to rise by 1%. Manufacturing production jumped 1%, while utility production rose 3.9%. The reduction was observed only in the mining sector, which dropped by 0.6%.
Another report was about the US housing market, which increased as well, according to the index for November. The rise was mainly due to improving confidence among US home builders.
The National Association of Home Builders said the housing market index rose to 90 points, up from the expected 85 points. As for the number of new homes and building permits, which will indicate activity in the real estate sector, data will be published today, and it is likely that it will remain at a fairly high level.
In conclusion, the statements of Fed chairman Jerome Powell were true, that economic recovery in the US is slowing down. In the short term, the risk is an increased COVID-19 incidence, and while the vaccine reports are good news in the medium term, the next few months will be difficult for the economy. Powell believes there is still a long way before the US economy returns to pre-crisis levels.
The material has been provided by InstaForex Company – www.instaforex.com
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