The most important negative factors that are forcing global markets to consolidate are still the worsening political situation in the US and the pressure from the COVID-19 pandemic.
Yesterday's announcement of US President Donald Trump's impeachment by Congress did not greatly affect the mood of investors. Markets continue to separate their emotions. Moreover, they believe that as soon as J. Biden takes the post, the dollar will pour down in the markets again, as the new administration will simply have no choice but to contain the crisis with dollar liquidity.
However, there are also skeptics who believe that the growth in Treasury yields fully reflects the opposite outlook in the future. According to them, the process of raising interest rates will begin this year in the wake of the economic recovery in America, which will negatively affect the growth of demand for company shares and in turn, will support the US dollar.
J. Bullard, Chairman of the Federal Reserve Bank of St. Louis, believes that the US economy will face high inflation in the future. There are a lot of forecasts created with this, so the only thing that remains is to wait for a great economic growth this year amid the massive vaccination of the population against COVID-19. These conditions include an extremely high budget deficit, which leads to higher prices, an excessive volume of money supply and the expected explosive growth of the economy. Previously, he said that he expects a noticeably higher inflation in the medium term, which means this year.
His opinion is assumed to fully coincide with the opinion of debt market traders, who have already begun to actively sell government bonds since the beginning of this year, which is mainly because of fears of rising inflation and, as a result, the risk of a change in the Fed's approach to monetary policy. Perhaps, that is the reason why the markets are consolidating this week.
Today, investors are anticipating the speech of Fed Chairman J. Powell at the Princeton Economics webinar. Here, some statements are expected that may clarify the regulator's perspective of interest rates in the future and the regulator's overall monetary policy before the Fed's meeting on January 27.
In any case, we don't expect Powell to say anything outstanding in his speech. However, markets may think that the regulator will not endlessly provide huge amounts of liquidity to growing financial bubbles by starting to reduce the volume of treasury repurchases. We believe that his speech will either not have a noticeable impact on the markets, including the currency one, or will stimulate the further process of consolidation until the Fed meeting at the end of this month is held.
Forecast of the day:
The EUR/USD pair is consolidating and finding support at the level of 1.2140. It may try to rise to 1.2220 again, if this level holds.
Gold is trading above the strong support level of 1828.70. It could rise to 1872.78, if the dollar stays under pressure amid updated declines in US Treasury yields.