Cracks are starting to emerge in America’s economic recovery from the pandemic, so Friday’s wages report will be a concern. If recent weekly jobless claims are any indication, the labour market slowing down during November will add to the pressure on the Fed to inject more monetary stimulus. A rough start to December for the USD Index, gliding without a parachute approaching nadir, under 91.00 today and at April 2018 lows.

According to the Refinitiv poll, the US economy is estimated to have added 481K jobs in November, representing a decline from an increase of more than 600K in the previous two months. The unemployment rate is expected to fall further, but at a slower rate, dropping only 0.1 points to 6.8%. Wage growth is also anticipated to be moderate, with average hourly earnings forecast to increase by 4.3% year-on-year compared to the previous 4.5% rate. The rapid decline in the unemployment rate from the pandemic high of 14.7% in April to below 7% in October is impressive. However, the fact that labour force participation rates remain well below pre-pandemic levels suggests official unemployment figures do not catch those who are in no position to return to the job market because of the health crisis.

The vaccine-led rally may have given Wall St. its best November on record, however, new cases of COVID-19 have increased by more than 100,000 a day over the past month, even surpassing 200,000 at the end of November. With the daily death toll approaching the peak of the first wave in April and many hospitals overloaded.

Recent remarks from Fed officials show that they are mostly happy with the current level of stimulus and there appears to be limited support for increasing asset purchases. As such, there is a risk that apart from renewing some of the emergency loan facilities due to expire on December 31, the Fed’s only other focus in December is to provide stronger forward guidance.

The chances of a deal in Congress on a new stimulus package for the United States economy have increased, according to Goldman Sachs. The investment bank notes that its projections come because it now appears Democrats are no longer insisting on multi-trillion dollar aid bills, meaning that a deal on economic stimulus is now more likely to be reached by the end of 2020. Prior to this, Democrats expressed support for a new bipartisan stimulus plan worth $ 908 billion, revealled earlier in the week.

Chart

Looking at the USD Index which tends to be bearish and still very strong so it has the potential to test the lower level of 88.13 , while EURUSD has broken away from the 1.2000 device , and is already testing 1.2120 . Looking ahead the 1.2200 level will probably provide more difficult resistance to overcome. However, if the jobs report defies predictions of a sharp slowdown, the dollar could catch up on bids, pushing the EURUSD pair back down to 1.2000.

 

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

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