Two birds with one stone: Democrats got a bipartisan deal

The U.S. Senate came close to passing a $550 billion infrastructure spending package. On Sunday night, 18 Republicans joined Democrats to limit further debate on the bill, signaling bipartisan support for its passage. Once the infrastructure bill is on the ballot, Chuck Schumer plans to move quickly to pass a budget resolution that will set the stage for Democrats to pass the rest of President Joe Biden's economic agenda. "It's all going to take some time, but it's worth it. I hope we pass both bills very quickly," said the Senate Majority Leader. One amendment issue, regarding the wording of a bill imposing new tax rules for cryptocurrency transactions, was resolved by Monday night, and consensus was reached on it. Another concern remains the risk that after the new infrastructure bill passes, Democrats will try to raise the U.S. debt ceiling by another 3.5 trillion in the same way through a bipartisan agreement without the support of Republicans. They only need 50 votes in the Senate to do it. Republican Senator Bill Hagerty of Tennessee is one of those who has put the brakes on the bipartisan deal from the beginning. But judging by the mood in the Senate, a compromise is imminent.
On the subject of government debt. Treasury Secretary Janet Yellen urged lawmakers to raise the U.S. national debt ceiling on the basis of a bipartisan deal, rather than using a process that would allow this to happen solely with Democratic support. "In recent years, Congress has addressed the debt issue on a regular basis with broad bipartisan support," Yellen said. "Congress should do it again and right now by increasing or suspending the debt limit on a bipartisan basis." As I noted above, these kinds of statements are a challenge to Republicans who oppose supporting a debt limit increase, one way to underscore their opposition to Democrats' plans to increase social spending. One option for Democratic lawmakers has been to include raising the debt limit in the upcoming budget resolution, which will be considered immediately after the infrastructure bill. As I noted above, the $3.5 trillion package sets the stage for the so-called reconciliation bill, which requires just 50 votes in the Senate to pass, eliminating the need for Republican support. Senate Republican leader Mitch McConnell said Democrats' attempts to pass the new spending in this way threaten Republican support. According to experts, the Democrats have another option - to convince at least 10 Republicans to vote for a debt ceiling as part of a temporary government funding measure to be passed by the end of September this year to prevent a government shutdown. But it remains to be seen whether Democrats will push for a $3.5 trillion limit increase or decide to act very differently. By and large, this amount does not save them, because sooner or later the planned spending will force them to raise the limit again, and there will be a fierce fight. So the Democrats are unlikely to start pissing off the Republicans now by waving the $3.5 trillion red handkerchief in front of them.

Two birds with one stone: Democrats got a bipartisan deal

Returning to the more proximate topic for the financial market, it is worth noting a number of statements made yesterday by representatives of the Federal Reserve. They were all quite sharp and hawkish in nature. Rafael Bostic, president of the Federal Reserve Bank of Atlanta, said the central bank should start cutting back on asset purchases in the next two to three months after making sure that job growth continues faster than expected. "We are on track to make significant progress toward our goal," Bostic said, calling Friday's report of 943,000 jobs definitely very encouraging. As for interest rates, he said he expects the first increase in late 2022. As a reminder, at the July meeting, Fed officials had already begun discussing when and how they should reduce asset purchases. The Fed currently buys $120 billion a month in assets -- $80 billion in Treasury securities and $40 billion in mortgage-backed debt. Bostick also said he favors a "balanced approach" - a gradual reduction in both mortgage-backed securities and Treasuries at the same rate.
As for the fundamental statistics, it did not affect the market much as it was not important. According to Destatis data released on Monday, German exports grew faster than expected in June, while the annual growth of imports slowed down. Exports rose 1.3 percent month-over-month in June after a 0.4 percent increase in May. Economists had expected growth of only 0.4%. Imports fell to 0.6% from 3.4%. As a result the positive balance of trade increased to 13,6 billion euros from 12,8 billion euros a month ago.
More interesting indicator was a report on investor confidence in the euro area, which declined in August due to a sharp fall in expectations. According to data from the Sentix research institute, the Sentix investor confidence index in the eurozone fell to 22.2 points in August from 29.8 points the previous month, against economists' forecast of 29.0 points. The current situation index rose to 30.8 points in August, the highest reading since October 2018. The expectations index fell sharply to 14.0 points from 29.8 points in July. The think tank said the economy is on the rebound, but its growth rate is slowing. According to Sentix, the German economy is still booming, but the investor confidence index for Germany has also declined.

Regarding the technical picture of the EURUSD pair, the pressure is still there and probably a break-down of the next low around 1.1725 will only create more problems for the buyers of the risky assets. This will bring down the trading instrument to the area of the 17th figure, and then to the farther low at 1.1640. An attempt of the upward correction can be discussed only after the pair returns to the resistance at 1.1750, a break-up of which will push the risky assets to the highs 1.1770 and 1.1790.
GBP

The British pound continued trading near its local lows and failed to win back its positions lost on Friday. The only thing that attracted the attention was the report on the number of British enterprises and companies, which closed or stopped trading over the reporting year. As the data showed, the number of such businesses in Q2 2021 was up 43% from a year ago. This is further evidence of the damage the coronavirus has done to the economy. The Office of National Statistics counted more than 105,000 businesses removed between April and June from the Interagency Commercial Registry, a list of all businesses registered for value-added taxes and fees. The biggest increase in closures in Q2 came from companies in professional, scientific and technical activities. The number of new businesses was up 28% from a year ago, an identical level to before the pandemic in the same period.

As for the technical picture of the GBPUSD pair, the smooth slide of the British pound downwards does not give a proper picture of the market entry. The nearest normal support in my opinion is around 1.3825, breakdown of which will quickly take the trading instrument down to the lows of 1.3780 and 1.3740. It will be possible to talk about buyers' return to the market only after the fixing above the level of 1.3877 with the aim to go to the highs of 1.3925 and 1.3980.
FX24

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