The weak news background has led to low volatility in the stock and currency markets. The dynamics are mixed, the demand for risk still dominates, but the emergence of a new driver is necessary for the formation of new strong movements.
It is clear that the world's central banks do not yet have an agreed position on the pace of recovery of the global economy and trade and the timing of the exit from the implemented stimulus programs. Yesterday, the RBNZ surprised the markets by re-presenting its rate forecasts, in which it expects to start a series of increases from the third quarter of next year. The RBNZ cited a stronger global backdrop, a much stronger New Zealand labor market, soft fiscal policy, and rising inflationary pressures as its arguments.
On the other hand, officials in the United States and Europe are trying to present a contradicting outlook to the markets, arguing that the current increase in commodity prices and consumer inflation is temporary, and so, there is no reason to revise the forecasts for rates. On Wednesday, ECB Executive Board member Panetta said that current conditions do not justify a reduction in the pace of purchases, as did the governors of the Central Banks of Greece and France.
This range of opinions reflects one of the main questions that the analytical departments of large banks are currently investigating, namely, whether the current increase in commodity prices is temporary or whether the world is on the verge of a new commodity super-cycle. The answer to this question directly affects the forecasts for both the rate and global currency trends. In the US, inflation expectations have a very strong correlation with oil prices, so the comments of Fed members about the temporary nature of inflation can be interpreted as follows: "We will not allow oil prices to rise."
However, the only way to limit the growth of oil and energy prices by monetary methods is through a strong dollar policy, and in turn, a strong US dollar will not appear until the Fed announces a reduction in the asset purchase program.
It is still unknown how the Fed will get out of this dilemma, but the US dollar is forced to remain weak in the current condition since the regulator's official position is that any hints about the curtailment of the stimulus program and growth of the rate are still early.
Today, there will be a lot of data from the United States. In particular, an adjusted estimate for GDP growth rates in the first quarter and April orders for durable goods. Moreover, the Minister of Finance J. Yellen is expected to speak in the evening. It is possible that there will be a rise in volatility by the end of the day.
EUR/USD
Germany's Gfk economic confidence slightly increased from -8.6p to -7p in May, but the growth is more symbolic than indicating a reliable growth in consumption. On the contrary, buying activity has declined after three months of growth. The index remains significantly below the pre-pandemic level.
At the same time, the result can not be considered negative, since consumer confidence in the German economy is at its highest in 3 years, and the current low level can be considered as a good basis for further growth. The Ifo index, which reflects the mood of managers in Germany, rose to 99.2 p in May. It is the highest since May 2019, that is, both managers and consumers are confident in the German economy, which is the key to a successful recovery.
Euro's bullish momentum is still strong. It is expected to consolidate above the level of 1.22, and then consider the level of 1.2350 as the target.
GBP/USD
The UK has no significant macroeconomic reports this week, so the pound's dynamics are generally determined by the external background. Risk demand remains high, which is bullish for the pound. The quarantine exit program is in process, and since the UK is ahead of most countries in terms of vaccination rates, the pound has an advantage.
There is no reason to assume that the pound will decline. Once the short correction ends, the level of 1.4224 will be retested. The target is 1.4375.
