Yesterday's sharp collapse in stock markets slightly calmed the currency markets, where the expectations of new support measures (amounting to $1.9 billion) from the new US administration previously supported its optimistic mood.
The sharp drop in stock indexes both in Europe and America, amid fears for a more active recovery in global economic growth, seems to reflect investors' real concerns.
On Monday, an IFO report showed the deterioration of the current situation in Germany, whose economy is the foundation of the Eurozone and the EU as a whole. The document showed that the German economy started the new year very weak, which foreshadows the continuation of negative trends at least in the Q1. This is primary due to the continuous development of the pandemic situation in Europe. Another negative factor for the markets was C. Lagarde's statement that the economic recovery in the region is delayed, although not disrupted. In view of these events, German stock index DAX 30, French CAC 40 and other industrial indices were the most affected.
In the currency market, the situation remained tense, but did not lead to a noticeable collapse of the main currencies. This is partly due to the fact that investors are waiting for the Fed's final decision on monetary policy, which begins today, and its result will be known tomorrow on Wednesday. Ahead of the meeting, the US dollar is gaining support, despite a decline in US government bond yields. There is no doubt that this market reaction is due to concerns about the possibility of a faster recovery in global economic growth.
We have previously indicated that the expectations of active vaccination of the population of Western countries did not come true. And due to the impossibility of producing a huge amount of vaccines, it seems that they were not in a hurry, since there are reports of the death of those vaccinated or the severe consequences of these vaccinations. This means that the growth of economic activity is at risk, and in such a situation, no support measures can help.
Now, let's go back to the possible results of the Fed meeting. We believe that the American regulator will not announce anything new. They are expected to maintain all incentive programs as well as interest rates. However, the market has already expressed the opinion that the Fed's decision may lead to an increase in the yield of treasuries, which means that this will be a strong factor supporting the US dollar.
Forecast of the day:
The AUD/USD pair is trading above the level of 0.7675. If the negative mood in the market continues, we can expect the pair to further decline to 0.7645.
The USD/CAD pair remains in the range of 1.2625-1.2785, still being under the general influence of the dynamics of crude oil prices and investors' attitude towards risky assets. If the pair fails to rise above 1.2785, then a local downward reversal to 1.2685 can be expected.
*Prezentowana analiza rynku ma charakter informacyjny i nie jest przewodnikiem po transakcji.
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