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The market is now at a crossroads. Possible explosive growth and its further strengthening or decline.
This situation developed at the end of the Friday session, when there was an increase in risk appetite. Positive data on China came out, and it was not without Donald Trump, who reiterated his discontent with the Fed's policy.
Over the course of many months, assets do not show a pronounced movement. This is due to the fact that traders can not decide what to do with the dollar and other risky currencies. It is worth noting that at the moment the situation for taking risks is more favorable than ever. The global risk index is at the most positive level since the moment preceding the collapse in early 2018.
The AUDUSD has been changing its direction for almost the past week, now it is just below the 200-day moving average. Meanwhile, the US stock market is less than 2% of a record peak, and the treasury yields are at reversal levels. Thus, the "10-year" is slightly higher than 2.50%, and the "30-year" is slightly below 3.0%.
The yen is showing the most stable downward trend. This became especially noticeable back on Friday morning, when the March lending data in China demonstrated the strength of the stimulus measures it used.
The question now is how long will the rally last in the event of a new round of yield growth - especially at the long end of the US curve. Recall that last year, aggressive increases in this indicator preceded significant pullbacks. Continuing growth in US bond yields, even with increased risk appetite, would mean a steady risk rally in an explosive scenario. Traders expect that the stimulus measures of China and the "softness" of the world central banks will support the growth of financial markets. But this will require confirmation from the economic forecasts.
Since only a technical reversal of the regime of falling rates is seen in the case of continued growth in the yield of 10-year securities, it is a bit early to talk about an increase in yields. But in any case, this is a stumbling block for the market, it is hardly a coincidence that the US indices are only 2% of the record highs since the autumn of 2018. Plus, this is just before the reporting season.
For currencies, continued growth in risk sentiment will coincide with the weakening of the yen, the dollar and the strengthening of the euro. The single currency is reaching up on hopes that stimulating the economy in China will benefit European exports. There is still an opportunity for an important test of $1.1500 by the EURUSD pair. The following data can play an important role in the euro's movement: the economic sentiment index ZEW in Germany (Tuesday) and preliminary PMI (Thursday).
On Monday, the EURUSD pair is quoted at slightly above $1.13. There is a risk that the news background will not allow it to stay and continue its upward movement. Some strategists even recommend to bet on selling. Following a recent ECB meeting, market participants received an additional signal that the euro retains its potential to decline.
On Saturday at the spring session of the IMF, Mario Draghi confirmed concerns about the growth of the eurozone economy in the second half of the year.
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