Stock markets continue to hold near the maximum values. The main impulse for this is still the unprecedented soft monetary policies of the world's largest central banks, where the US Federal Reserve remains the key leader in this process.
Why is there such a dynamic in the markets?
We believe that not only the fact that large amounts of liquidity are injected into the financial systems of economically developed countries supports the demand for risky assets – company shares, but also the expectation that the growth of US inflation may not be high temporarily. To simply put it, investors are hoping that the inflationary curve will be smoother. The negativity for shares is primarily J. Biden's decision to raise taxes to pre-Trump levels, which will contain a sharp increase in inflation, reducing demand from active to more moderate. In addition, we should remember that COVID-19 that has not faded, which continues to strongly affect the currency markets.
In terms of the currency markets, everything is still extremely boring. The US dollar rate stabilized after a local strengthening amid the publication of a slightly more moderate number of new jobs in the non-agricultural sector in April from ADP, which showed less than expected growth – 742,000 against the forecast of 800,000, while March value was revised upwards to 565,000.
Although the figures turned out to be below expectations, they were noticeably higher than the March ones, which did not allow the US dollar to add to the main currencies, but did not decline either. Now, the market will focus on the publication of official data from the US Department of Labor, which will be released tomorrow. A more moderate growth in the number of new jobs is expected here – 978,000 against 916,000.
We believe that their number will be an important signal for all markets without exception. This is related to how employment will grow and what the growth rate will be. If it grows more or less smoothly, then the inflation growth may also not be so sharp, which will reduce the risk of fear of an earlier change in the course of the Fed's monetary policy. This means that the demand for stocks will continue and will push up stock indexes not only in America. Based on this scenario, we should not expect the US dollar to further rise. At best, it will continue to consolidate in ranges against most of the major currencies, possibly only excluding commodities. In the worst case, it will be under pressure and the ICE dollar index will adjust from a level above 90.50 points to 89.00 points.
Analyzing the market situation, it can be assumed that there will be noticeable movements tomorrow amid either significantly higher or lower values of the number of new jobs in the US.
Forecast of the day:
The EUR/USD pair found support at the level of 1.2000. Its growth above the level of 1.2025 may further push the pair upwards to 1.2100.
The USD/CAD pair is trading below the level of 1.2275 on the wave of a rebound in crude oil prices and updated demand for risky assets in Europe. Against this background, we believe that it may decline to the level of 1.2200.
