11.05.202112:20 Forex Analysis & Reviews: US dollar is unlikely to rise amid stock markets' temporary weakness

Last Friday's weak US employment data only managed to support investors' interest in risky assets temporarily, and so, the US dollar was forced to decline only at the end of the previous week.

At the start of the week, it seems that the market started to perceive the extremely weak data on American employment as a serious negativity and indicate that the US economy may not show the strong recovery growth expected from it, after a certain surge of optimism amid the expectations that this will be the reason for the continuation of the course of the Fed's super-soft monetary policy. This already worried investors and caused the decline not only of the US stock indices, but also European and Asian ones, with the exception of Chinese ones.

The negative dynamics that began on Monday continues today across Asia and Europe. In addition, the futures for major US stock indexes are showing quite noticeable negative movements, which indicates that the American session will open in the red zone.

As for the currency markets, the US dollar does not receive noticeable support, remaining near the local low of March this year.

Why is the US dollar not rising in this developing situation in the markets?

Apparently, investors' withdrawal from risk in the stock markets should traditionally stimulate demand for the dollar as a safe haven currency, and the upward dynamics of the Treasury yield also traditionally stimulates the upward dynamics of its exchange rate, but this is not observed.

In our opinion, the weakening of investor interest in stocks will be local, which is clearly confirmed by the lack of strong interest in the US dollar as a safe haven currency. In any case, there is currently no strong demand for the national currency. Most likely, the stock indexes will adjust downwards, as they could not previously continue to grow due to the lack of strong drivers, and then resume growth. There are critical reasons for this. The most important of which is the unprecedented stimulus measures from the world's central banks, led by the Fed.

We expect that the correction in the stock markets will be short-term. The US dollar is unlikely to receive significant support.

Forecast of the day:

The EUR/USD pair found support at the level of 1.2125. A consolidation above this level may stimulate its further growth to 1.2225.

The USD/JPY pair is trading above the level of 108.70. The breakdown of the 109.00 mark amid the stabilization of the markets will lead the pair higher upwards to 109.50.