FX.co ★ Will optimism return in the markets?

There was a noticeably lower activity today due to the holiday in the US yesterday. The dollar lost some of its position in the currency markets, futures for US stock indices pulled back up, and the European one closed diversely.

The focus of investors' attention remains on the following topics: J. Biden's inauguration that will be held tomorrow, and ECB's monetary policy meeting. In addition, investors are waiting for the first speech of Former Fed Chairman J. Yellen in Congress, who is a candidate for the position of US Treasury Secretary.

In relation to taking office, there are political concerns about Biden's position. It is possible that his opponents will make disastrous actions, which could lead to noticeable unrest in the country. At the same time, markets expect the European regulator to make signals of dissatisfaction with the euro's growth, which prevents the region's already struggling economy from successfully competing with its goods on world markets. As for Yellen, they expect her view on the economic situation in the country and the prospects for monetary policy. Although she is not related to the Fed, her authority as a former head of the Central Bank is still very high. Therefore, investors will also consider her opinion.

There is also a strong opinion in the market that the US dollar will continue to decline this year, which contradicts the current reality. Since the beginning of the year, the dollar index has added about 2.0%. In addition, the large-scale measures promised by Biden to support the country's economy and its citizens, remain the strongest factor that weakens the national currency. In our opinion, the only hindrance that can support the dollar rate and have a serious negative impact on the demand for risky assets, is the emergence of problems in Congress with the adoption of the $ 1.9 trillion aid plan.

This morning, trading is marked by the weakening of the dollar and the growth of futures on European and American stock indices. It seems that optimism is returning to the markets, but these movements may also contain the reason for the common pullback after Friday's decline and Monday's consolidation. Everything can change, as it has happened many times before.

We believe that a lot will depend on the Congress decision on stimulus in the amount of $ 1.9 trillion, since this is the main driver of the growth in demand for risky assets and weakness of the US dollar.

Forecast of the day:

The EUR/USD pair is trading below the level of 1.2110. A failure to breakthrough it will lead the pair further below, that is, to 1.2000 mark.

The USD/CAD pair is moving in the range of 1.2630-1.2800 awaiting the Central Bank of Canada's decision on monetary policy. The pair is expected to decline to the level of 1.2630 if it falls below 1.2720.