04.01.202210:00 Forex Analysis & Reviews: Victory over the COVID-19 pandemic will radically change the situation on the trading floors

The New Year holidays are already over, at least in the vast majority of economically developed countries. Now, investors are beginning to return to the markets, assessing the results of the past year and the prospects for the coming one.

On Monday, European trading floors were closed due to the long New Year holidays, but Asia and the United States were already trading, which showed traders' desire to continue the Christmas rally, which began last month but should end this week.

The question arises here: how will the markets behave at the beginning of this year and what factors will have a strong influence on them?

In our opinion, an important signal for investors is the topic of the coronavirus pandemic, which has disturbed world markets for the past two years. What will happen to it and when will this virus be finally defeated? We believe that the most important indicator is the dynamics of company shares that were severely affected during the pandemic. First, these are companies in the tourism sector and passenger carriers, primarily airlines. At the end of last month, the markets began to receive news about the start of production of a drug for COVID-19. This is not a vaccine, but a drug, which, together with a large number of vaccinated populations, should significantly weaken the impact of this infection.

In addition, the study of the last strain "Omicron" showed that although it is more infectious than all the previous ones, mortality from it is noticeably less. Recent studies by epidemiologists show that this strain will most likely put away the pandemic.

Obviously, investors who are closely following this topic have assessed the prospects of the companies in the above sectors, which caused the rise in the value of their shares. This is the strongest signal indicating the likely strong and positive dynamics of the stocks of the companies that were hit hard during the pandemic.

Given the growing expectation that the impact of COVID-19 on the global economy will end, an increase in demand for commodity and raw material assets should be expected since the strengthening of the world's economic activity will lead to an increase in demand for these assets. Therefore, we expect a recovery in the growth of prices for them.

In this case, commodity and commodity currencies may begin to receive support, whose growth can be restrained only by the strengthening of the US dollar. In turn, this can only happen if US inflation continues to rise. Therefore, the consumer inflation data published this month will significantly affect the dynamics of the US dollar, as it will influence the Fed's decision on the timing of the start of the process of raising interest rates. But while there is uncertainty on this issue, the dynamics of the financial market will remain lateral. A similar picture is also likely to be observed in gold and in the prices of other assets traded in USD.

Analyzing the market picture, we believe that there will be an increase in demand for company shares this week. Sideways dynamics of major currency pairs, where the dollar is present, and a slow recovery in crude oil prices to local highs in October last year, might be observed as well.

Forecast of the day:

The USD/JPY pair has broken through the strong resistance level of 115.50. A consolidation above it will open the way towards the level of 117.00.

The USD/CAD pair is declining amid rising oil prices. Its decline below the level of 1.2730 may become the basis for a local decline to the level of 1.2625.