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The new week started with a moderate increase in demand for risky assets, while the US dollar weakened. All this happened amid the partial closure of national trading floors in Europe.
What is the reason for this market behavior that is happening in recent weeks?
Let's start with the main ones. First, this is associated with the unprecedented stimulus measures in both Europe and America. On the wave of this phenomenon, the main beneficiary was the US stock market. Amid the lack of real growth of the national economy, it was supported by a huge amount of cheap dollar liquidity, as well as, by foreign investments, which is stimulated by expectations not only of the country's economic recovery but also of its growth.
By early May, demand for risky assets began to decrease. This began to happen because of the discrepancy between expectations and realities. The Fed and the US Treasury, as well as relevant organizations in other economically developed countries, began to note the difference between the expectations of strong economic growth this spring and the current situation. In addition, strong American inflationary growth given the weak dynamics of growth in the number of new jobs began to confuse investors, who showed extreme cautiousness, which is manifested in the consolidation of stock indices, primarily in Western countries.
The commodity markets are also showing a similar picture. Quotes of crude oil are consolidated in ranges. The same thing happened in the currency market. Here, yields on US government bonds stopped after rising in the winter and are moving in quite narrow ranges. It can be recalled that the US dollar began to noticeably grow at the beginning of this year due to its growth.
In conclusion, it is worth noting that the lack of strong impulses that could support demand in the markets does not allow them to grow. At the same time, lingering hopes that the global economic recovery will continue are still quite strong and do not allow investors to start a massive sell-off. Given this, we believe that the current condition will continue until new data on US employment will be published next week.
Forecast of the day:
The EUR/USD pair remains in a short-term upward trend, although it has been consolidating in the range of 1.2160-1.2240 lately, approaching the target. We believe that if the upper border of this range is broken through, the pair may further rise to the level of 1.2325. If this does not happen, it will reverse and decline to 1.2160.
The USD/CAD pair is consolidating above the level of 1.2030. After the breakdown of this level, we should expect it to decline to the level of 1.1900.
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