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The data on business activity indexes in the manufacturing sector (PMI) of the leading European countries, as well as the US, released on Monday, showed that the decline, if not over, then noticeably stopped.
According to the data presented, business activity indexes in the manufacturing sector (PMI) of Spain, Italy, France and Germany, as well as the eurozone, respectively rose to 38.3 points, 45.4 points, 40.6 points, 36.6 points and 39.4 points. The indicators of Great Britain and America also added up to 40.7 points and 43.1 points. Of course, the values are still below the key level of 50 points, indicating growth in business activity, but in this situation, the consequences of the COVID-19 pandemic are already accepted by investors as a good sign. It can be recalled that of the leading economically strong countries, so far only China has managed to reach an increase in the index of business activity in the manufacturing sector (PMI). Moreover, the data presented yesterday showed an increase to 50.7 points.
Global markets reacted to positive news on Tuesday, signaling a halt in the decline in economic activity in Europe and the US and some growth in Asia, increased demand for company stocks and a weakening US dollar. If earlier, this was most noticeable in the strengthening of commodity currencies, yesterday all major currencies received support against the US. The main reasons for such optimism are the continued withdrawal of countries that are economically important to the World from quarantine measures and the lack of real and effective sanctions measures by Washington against China.
On Friday, D. Trump, who had threatened Beijing with all the punishments, made it clear that he was not ready to go to a more serious aggravation of relations between the countries. Of course, investors took this news as positive, which demonstrates the formation of a certain "red line" that the States are not yet ready to overcome in their political and economic disputes. It was this news that was an important supporting factor in the growth of demand for risky assets with a simultaneous weakening of the US currency.
We believe that maintaining this state of affairs in the near future will contribute to strengthening the depreciation of the dollar, which is also negatively affected by its wide supply in the US financial system. A high volume of dollar liquidity increases its supply and accordingly weakens the exchange rate, while a positive sentiment regarding the restoration of global economic growth in the post-pandemic time leads to a weakening of its function as a safe haven currency.
Assessing the short-term prospects for the dynamics of the currency market, we can talk about the continuation of the process of depreciation of the dollar against the backdrop of rising stock markets and the value of commodity assets.
Forecast of the day:
The EUR/USD pair has reached our target level of 1.1150. It is likely to correct down to 1.1070 amid local technical overbought, before continuing to rise to the level of 1.1150, and then to 1.1200.
The NZD/USD pair also started to correct down. It is likely to decline to around the level of 0.6215, which will correspond to a 23% Fibonacci retracement before resuming growth to 0.6365.
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