The mix of upside movement in risk assets, bounce in Gold price and intensified USD pressure that we saw on Monday suggests that markets could deploy its key catalyst of positive expectations – a fiscal deal in the US. A report hit the wires yesterday that a bipartisan group of US senators had agreed on a $908 billion fiscal package, which is a strong sign of revived bipartisan cooperation on the deal. The silence was also broken by key congressional figures - House Speaker Pelosi and Senate Majority Leader McConnell, who said they have something to offer to party opponents. The headlines bring the fiscal story back to the foreground with chances rising that it will be approved in December.
As for data releases, ADP estimate of jobs growth in November deserves the most attention. The headline figure is expected at 410K vs. 365K in October. Good labor data today and tomorrow should help risk assets to cement their current positions, but a downside surprise should not be ruled out. Initial jobless claims data indicated that the labor market could weaken last month. Having reached a local through in early November (711K), the rise of initial claims for unemployment benefits started to accelerate and rose to 778K:
Strong Australian data for the controversial third quarter also added positivity to the market. Quarterly GDP growth was 3.3% which topped forecast of 2.6%.
Powell's testimony in the Senate could give the dollar another trip today, as the Fed chief is expected to shape expectations ahead of the Fed meeting in December.
EURUSD decided not to bother with a pullback and broke through 1.20 earlier than expected. GBPUSD also rallied, consolidating around the September high of 1.3476. The move suggests it’s all about USD supply-demand now, so it makes sense to keep an eye on headlines coming from the US. Particularly on the positions of Democrats and Republicans regarding the fiscal deal and how they are converging (or diverging).
EURUSD is likely to consolidate near the already new support at 1.20 and target April 2018 highs (1.22-1.23) in December. Short-term pullback to 1.20 with a possible fake breakout may be needed to jump into long positions. The main risks for the Euro lie in negotiations on Brexit and the Eurozone recovery fund but, they are insignificant. The ECB has made it clear that it won’t wave a sledgehammer (in the form of QE or deposit rate cut) and is likely to opt for expansion of targeted measures, favorable news for the Euro. It is also interesting to note that the USD was in a downtrend 7 of 10 previous Decembers, which suggests a seasonal factor could come into play this year too. USD will probably remain on the defensive for the whole December and the main struggle will unfold with the dollar index at 90 points.
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