It seems that today's trading in Europe will start multi-directional on the wave of investors' continued hopes for a global economic recovery, despite the current restrictions in European countries due to the pandemic, as well as the risk of continued inflation growth mainly in the United States, which may force the Fed to start changing the monetary rate. This might also be a signal for the European Central Banks.
The dynamics of the US stock market shows that this might actually happen. Yesterday, indicators increased in response to extremely positive data from the Conference Board Consumer Confidence (CBI) and Composite Home Price Index. In particular CBI surged to 109.7 in March from the downwardly revised February mark of 90.4 points and against the expected growth to 96.9 points.
The indicator clearly shows that consumer confidence will result in an increase in demand for goods and services, which will eventually stimulate inflationary pressure. If this reaches the 2.0% target, it will be hard for the Fed to ignore it.
Moreover, Fed members Bostic, Williams, Quarles, Kaplan also made it clear yesterday that the Fed expects the economy to sharply grow in the spring-summer period, which will have a strong impact on the views of the regulator on monetary policy. In fact, some of the Fed's members are already openly talking about the possibility of actually starting the process of normalizing monetary policy next year.
In our opinion, this is the main reason why the US stock market is having a hard time to rise. Although it has the desire to grow, it constantly looks back at the dynamics of growth in Treasury yields. On Tuesday, the continuation of growth in the yield on US Treasury bonds hindered the attempts of the local stock indices from rising. Here, the 10-year Treasury yield tested a new local high of 1.776% and despite the downward correction, its unpleasant aftereffect remained on the stock market. Today, the yield continued to increase again at the beginning of the European trading session.
In terms of the currency market, the US dollar continues to rally against the basket of major currencies. The ICE dollar index rose to the level of 93.38 points at the end of Tuesday's trading and sharply consolidated above the level of 93.00 points.
Today, the dollar is slightly correcting downward. This trend may stop if ADP's employment data time turns out to be better than the forecasted growth of 550,000 new jobs in March against 117,000 last February. On this wave, the local weakening of the dollar may be supported again by the updated growth in the Treasury yield.
Forecast of the day:
The EUR/USD pair is recovering amid closing long dollar positions before the release of ADP employment data. If they do not surge, the pair will decline again. On the wave of positive data, it is possible to sell the pair approximately from the level of 1.1760 with a likely decline to 1.1700.
The USD/JPY pair is also making a downward correction while waiting for US news. It is possible to buy the pair on a decline with its likely growth to 111.00, if the data from America turns out to be positive.
