The Fed's head, J. Powell, still managed to pull the US stock market, and other financial markets, out of the consolidation period. The economic statistics published yesterday contributed to this.
Speaking twice before senators and congressmen on Tuesday and Wednesday, Mr. Powell managed to convince the currency markets that the regulator will pursue an ultra-soft monetary policy for as long as possible. In fact, he assured investors that they still have a time lag to play on the growth of the company's shares. The combination of the regulator's position, as well as Powell's personal assurances that the Central Bank expects a strong recovery in the national economy this year, led to a strong increase in demand for companies' shares in the industrial, commodity and other sectors that experienced problems during the pandemic. In this case, the DOW 30 industrial index surged to new peaks, testing the level of 32,000 points. Its futures are currently above this mark.
The second important factor that contributed to the optimistic mood was the published strong data of the new residential real estate market. January's new home sales sharply increased to 923,000, which was 4.3% against the expected figure of 2.1%.
In addition to Powell's positive rhetoric, the market received assurances from other members of the Central Bank – Clarida and Brainard also boosted the demand for risky assets.
Such a mood continued in the oil market. The crude oil's quotes are sharply trading above the values of $ 60 per barrel. Prices are pushed up by the expectation of a strong surge in economic activity amid active recovery in the global economy.
The market dynamics yesterday also fully disregarded the continuation of growth in yields in the US Treasuries. The market hype slightly shifted investors' attention from the expectation of a sharp inflation growth in the wake of economic recovery, which actually stimulates the growth of rates in the debt market. It can be assumed that Powell, who provided the markets with the idea that the Fed is ready to go some lengths to support the economy for the sake of its rapid recovery, is the reason for this.
Assessing the current situation, we believe that the overall positive mood will continue. In such conditions, the US dollar will mainly remain weakening in relation to commodity and raw currencies. The important supporting factor is still the growth in Treasury yields.
Forecast of the day:
The USD/CAD pair continues to decline amid strong growth in crude oil prices and demand for risky assets. The price is at the level of 1.2525. If it consolidates below which, the decline will continue towards 1.2400.
The AUD/USD pair is still in a short-term upward trend. We expect it to further rise to 0.8000, and then to 0.8100.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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