On Tuesday, world markets rallied amid continued recovery in global economic activity, which is supported by optimistic sentiments associated with active work in the field of vaccine production and quarantine countries. The dollar was under pressure and is gradually losing ground in the currency market, which is more noticeable in pairs to commodity currencies.
Earlier, the markets actively discussed the possibility of a second wave of falling demand for risky assets and, as a result, the strengthening of the US dollar. But this did not happen and, as we believe, will not happen, which has been repeatedly pointed out in previous reviews, unless, of course, D. Trump actively guilt trip China for the COVID-19 pandemic.
On Tuesday, the optimism of the markets was probably supported by the release of really positive data on the US economy for the first time in recent months. New home sales in April showed a recovery after falling in previous months. They rose to 623,000 against a decline in March to 619,000 and a forecast of a further decline to 490,000. In percentage terms, they added 0.6% in April against a decline of 13.7% in March and expectations of a 21.9% fall. This is good news that indicates that, as Fed member J. Bullard put it, the American economy has gone through the initial shock of the coronavirus pandemic.
Today, investors' attention will be drawn to the statement of the ECB President C. Lagarde, from which they are expected to comment on the topic of additional measures to stimulate the eurozone economy, which was proposed by the President of the European Commission, U. von der Leyen. They are based on the Franco-German plan for supporting Europe. We are talking about the 500 billion aid fund, which was previously proposed to be created by the Germans and the French.
These support measures will contribute to the activation of recovery processes in Europe, which may provide strong support for the single currency, which has been under pressure lately due to the uncertainty associated not only with the impact of the coronavirus pandemic, but also how the stimulus measures will be implemented in the region's economy. The expansion of incentive measures will attract the attention of investors to European government bonds, as well as to shares of European companies, which, in turn, will lead to the conversion of the dollar into euros, which were previously actively bought as a safe haven currency. This trend will contribute to the appreciation of the euro.
In the currency market, as we believed, the growth of economic activity of countries after the pandemic supports commodity currencies, which are growing not only amid growing demand for commodity and commodity assets, but also due to the absence of new claims by Washington to Beijing regarding its guilt in the COVID-19 pandemic.
Summing up, it can be noted that the current trends in the markets will most likely continue. Production of a vaccine against COVID-19 will only strengthen the process of growth in demand for risky assets, which, in turn, will crush the dollar in the currency markets, and the relegation to the background of Beijing's guilt for the pandemic will only strengthen these processes.
Forecast of the day:
The EUR/USD pair is trading below a strong resistance level of 1.0990, which can be broken through if C. Lagarde makes a positive statement for the euro and could lead to a price increase to 1.1035.
The USD/CAD pair broke out of the wide side range of 1.3860-1.4245. We consider it possible to resume its sale after declining below the level of 1.3760 with a likely drop to 1.3620.
