The global stock indexes managed to partially recover at the end of the week primarily due to the results of the Fed meeting, which was supported by the decisions of the Central Bank of England, Switzerland and Japan, and previously, the ECB on monetary policy.
In fact, the world's largest central banks, leaving all the parameters of monetary policies, showed a desire to maintain soft rates for quite some time, which is due to several reasons, the most important of which is to stimulate national economies in the context of the ongoing coronavirus pandemic.
Investors now have an understanding of what to expect from the world's largest central bank after the Fed announced its intention to stop buying assets by the middle of next year – government Treasury bonds and corporate mortgage securities, but at the same time, the regulator in the person of its leader, J. Powell said that the monetary rate will remain soft for a significant period of time. The attention of market participants will be focused on the upcoming economic statistics for the third quarter and corporate reports of companies.
What can be expected in the markets next week?
We believe that investors will try to maintain a positive attitude, but again, a lot will depend on the situation with the COVID-19 pandemic and with further vaccination of the population of economically developed countries. If the pandemic does not cause a new significant blow to the global economy, then we should expect a smooth recovery of its growth, followed by a recovery in business and general economic activity, which will become the basis for an increase in demand for shares of companies and commodity assets.
At the same time, any significant changes are not expected in the currency market among the major currencies. This is due to the fact that the world central banks are clearly monitoring the actions of the Fed and are actually moving on the wave of its monetary policy. We believe that as soon as it makes a decision on the process of a real increase in interest rates, all other Central Banks will react sharply to this. This largely excludes the possibility of the formation of long-term, unambiguously directed up or down trends. It seems that the days when they were observed in the currency market are over. In any case, we should not hope for this.
To sum everything up, it can be noted that the rally, which started this week in the stock markets, is likely to continue next week, and the US dollar will remain under pressure in the short term.
Forecast of the day:
The USD/CAD pair is making an upward correction after a strong decline the day before. The pair may decline again after reaching the level of 1.2725 and further fall to 1.2580.
The GBP/USD pair is consolidating above the level of 1.3700 after a local growth. If the markets' mood deteriorates today amid problems with economic growth in the UK, then there is a possibility of another decline to the level of 1.3615.