With coronavirus infections showing no signs of slowing many medical systems in the US and Europe are coming under unsustainable stress forcing governments in those regions to consider further lockdown measures. Even without formal lockdown measures mobility data suggests that consumers are retreating again and anecdotal data indicates that hoarding of staples in the US is once again becoming a problem on the supply chain.

All of this suggests that the economic rebound from spring lows may be in danger of slowing as economic activity is clearly becoming curtailed.

For now, equities have been supported by easy monetary policy and the prospect of additional fiscal stimulus, but with the atmosphere in Washington DC poisoned by Trump’s refusal to acknowledge that he lost the Presidency the chance of any significant spending package has been reduced significantly. The move is further complicated by the focus on the Senate runoff election in Georgia where the outcome can shift the power structure in Congress.

Today’s US weekly jobless data could provide clues as to whether the economic slowdown is taking place with markets looking for little change from last week’s 709K number. However, if claims rise the news could provide the catalyst for further selloff as the day proceeds.

Meanwhile, in Europe, the wrangling continues over the stimulus package as Poland and Hungary vetoed the EU budget over the clause on the rule of law. Some European diplomats believe that both Warsaw and Budapest are bluffing as both economies badly need the stimulus funds but in Eastern Europe, the political sentiments often trump economic considerations and there is a very real chance that they could scuttle the deal in which case the rest of the EU would need to consider rewriting the languages or cutting Hungary or Poland out of the package altogether which only intensify the strains on the union.

For now, the EURUSD remains firm around 1.1800 as markets continue to view the latest drama as just a distraction, and given the critical need for stimulus it’s doubtful Hungary and Warsaw could kill the deal, but any further delay could start to put further selling pressure on the pair and it could drift below 1.1800 if tensions persist.

Author

Boris Schlossberg

BKTraders and Prop Traders Edge

Boris Schlossberg was key speaker at the FXstreet.com International Traders Conferences 2010. Mr. Boris Schlossberg is a leading foreign exchange expert with more than 20 years of financial market experience.

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