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The stock markets were optimistic again yesterday due to the prospects for stimulus programs in the EU and America.
Investors have been waiting for at least some news on these topics for a long time. It should be recalled that the topic of the Assistance Fund in Crisis Situations was discussed earlier in the EU. Meanwhile, in America, there was a heated argument regarding aid measures to fight COVID-19 even before the presidential elections, which became one of the factors of the political tension.
It became known yesterday that the finance ministers in the Eurozone agreed to strengthen the regional crisis relief fund, which amounted to 750 billion euros. In view of this, the main currency pair, EUR/USD, sharply rose by more than one figure and positively consolidated above the level of 1.2050. On the other hand, the dynamics of the European stock market grew, but this growth was not quite optimistic. Still, the broad restrictive measures in Europe continue to have a noticeable negative impact, reducing economic activity in the region.
At the same time, reports that the Bipartisan in the US will release a $ 900 billion consensus stimulus package to fight the effects of COVID-19 has led to a sharp increase in demand for companies' shares and testing the S&P 500 and NASDAQ 100 indices for next historical highs. Moreover, this news also supported the US dollar's weakening against the euro in particular and the overall currency markets, due to expectations that the adoption of stimulus measures will put pressure on the dollar again, as a result of its supply growth in the financial system.
Analyzing the markets, we can say that investors are trying to have time to buy shares of companies. Moreover, it seems that they are ready to actually buy anything, in the hope that COVID-19 vaccinations will start in January next year. This will lead to the growth of the world economy in general and the US economy in particular. Thus, market participants completely ignore new cases and deaths of COVID-19, which clearly indicates a powerful change in market mood.
However, despite such strong positive sentiment, we believe that the risks of starting a correction this month have increased significantly. The shift in demand towards purchases of risky assets is similar to the movement of a cruise ship with passengers on one side, which can lead to a tilt and the risk of its overturning. We believe that the resumption of profit-taking after a very successful November may cause a collapse in stock indices with a simultaneous increase in the US currency rate.
Today, the market's attention will be focused on the release of ADP's employment data in the US. It is expected that the number of new jobs in the non-agricultural sector will grow by 410,000. If the data does increase, this could give new impulse to the weakening of the US dollar amid growing demand for company shares. In addition, it is expected that Fed members Harker, Quarles and Williams will speak today, as well as the Central Bank's head, Mr. Powell.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.2000. It significantly rose during the past days and may continue to rise to 1.2155 after a corrective decline to 1.2000.
The GBP/USD pair is trading above the level of 1.3400, amid the dollar's general weakening. It may continue increasing towards 1.3475, considering it holds above 1.3400.
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