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On Monday, the Easter holidays continued in Europe and in many countries of the Asia-Pacific region, which had an impact on the dynamics of the currency market. Here, the US dollar was under pressure despite the strong American employment data last Friday.
Why did investors not react to the traditional strengthening of the US currency in such cases?
It is possible that the primary reason was the growth in demand for companies' shares in the US on the wave of optimistic sentiments regarding the prospects for the recovery of the American economy and its further growth. In addition, the suspension of growth in Treasury yields also contributed to this, which has been consolidating for the last three days, including today. In particular, the yield of the benchmark of 10-year Treasuries has been moving around the 1.7% mark all this time. Earlier, it was at 1.693% and then fell by 1.55%.
Considering that the yield on Treasury government bonds continues to change insignificantly, this will stop to be an important supporting factor for the US dollar. As a result, the national currency will noticeably decline against major currencies amid recovery in demand for risky assets, which is supported by massive inflow of dollar liquidity and investors' expectations that the growth of the US economy in particular and the world economy in general will continue amid vaccination of the population, primarily in economically strong countries.
It is also worth noting that the publication of strong data of the purchasing managers' index for the US non-manufacturing sector from ISM for March is an additional stimulus to the growth of demand for risky assets and accordingly, a new pressure for the dollar. Here, the indicator surged from 55.3 points in February to 63.7 points, against the forecasted growth of 59.0 points.
Today, the market will pay attention to the Eurozone's publication of employment data and America's number of job openings in the JOLTS labor market. We believe that if the US data comes out in line with the forecast or even higher, this will stimulate the growth of demand for risky assets and accordingly, put pressure again on the US currency.
Forecast of the day:
The EUR/USD pair is above the level of 1.8000. If Europe's unemployment data does not turn out to be worse than expected, and the pair remains above this level, it is likely that it will further rise to 1.1880 on positive market mood.
The USD/JPY pair is trading below the level of 110.40. If risk demand continues to increase today, the pair may further decline to 109.50.
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