EURUSD and Gold: Strong Urge to Move on Signs of a Breakthrough in the Fiscal Talks
US stock index futures, in a brisk movement, extended gains on Friday as fiscaldeal optimism appears to be gaining momentum again. Yesterday we got the newsthat Trump mulls over possibility to restart fiscal talks after House SpeakerPelosi hinted that the Democrats could make a compromise on some of theunacceptable to Republicans in the deal. Recall that Republicans and the WhiteHouse prefer to go with targeted measures - a separate package for airlines, apackage providing stimulus payments to Americans, etc. Democrats, on the otherhand, want a "comprehensive" package, the price tag of which is muchhigher. This is the fundamental contradiction between the proposals.
Gold has broken through area below $1900 where sellers held the tight grip.Demand on Gold remains highly sensitive to the news about prospective Treasury supplyin the US (which is implied by fiscal deal success/failure) by and currentlyaims for a retest of $1920 level, where it faced strong resistance on October6. Converging positions of the White House and the Congress on the deal favors asecond test of $1920 gold level.
Among important US economic data, it is worth highlighting unemploymentbenefit claims, which were released on Thursday. Despite pessimism over delayin government aid, unemployment steadily declines in the US.
Sharp decrease in continuing claims in the week prior to the last wasfollowed by a less steep decline, from 11979K to 10976K (with a forecast of 11400K).Initial claims came slightly worse than the forecast, but nothing serious -840K against the 820K forecast. The 4-week moving average, which gives usinformation about the trend, continued to move downward, i.e. US macroeconomicpicture provides solid foothold for confidence in the markets.
The Minutes of the ECB September meeting indicated that the Central Bank ismore concerned about inflation outlook than investors previously thought. Justa month after the meeting, the Central Bank was disappointed with its ownforecasts, saying that inflation forecasts made in September seem to be overlyoptimistic. It is very likely that the ECB is preparing the markets for a newQE, for which the euro and European assets are not yet ready at all. On theother hand, we have expectations of a US fiscal deal, which put a lot ofpressure on the dollar, so near-term EURUSD picture will depend on the relativespeed of implementation of these two easing measures. So far, the ECB has givenmore vague hints of new monetary easing and the main focus remains on fiscalmeasures in the US. Short-term EURUSD picture indicates possible test of 1.1860level:
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