This week turned out to be quite calm after all the significant events that happened last week. After updating new local highs, the US stock indices began to consolidate in anticipation of new impulses to rise. Almost the same thing can also be observed in the currency markets.
Following a strong downward pullback last month, which was caused by speculation of retail investors in the US stock market through social networks, as well as the equally sharp price return to previous values, the current week is rather peaceful, which is apparently due to the lack of strong drivers, both positive and negative.
Let's start with the positive ones. The market still believes that vaccinating the population and new support measures in the amount of $ 1.9 trillion in the US will support the economic recovery of the world in general and the US economy in particular. Here, Congress' approval of support measures, which the markets are expecting, plays an important role. Analyzing the current events, one gets the impression that there is only positive news on the market that will increase the demand for risky assets, but this is not fully accurate.
The US consumer inflation data released on Wednesday showed that there are real problems with its recovery. Based on the published statistics, the consumer price index in annual terms rose less than expected – by 1.4% against the forecast of 1.5%. As for monthly terms, the indicator maintained the growth rate of 0.3% against the December growth of 0.2% and expected growth of 0.3%. On the other hand, January's core consumer price index did not rise at all, although it was expected to by 0.2%. The annual value of this indicator generally declined from 1.6% a year earlier to 1.4%, with a forecast of 1.5%.
This news caused some profit-taking in the stock markets, which was reflected by a simultaneous decline in stock indices, as well as a weakening of the US dollar.
As for the overall dynamics of the currency market, it was previously indicated that it is in full correlation with the behavior of stock indices. We can say that this correlation that existed earlier is returning. Thus, the dollar's decline can be noted in the wake of the increase in stock indices and its decline in their growth.
Assessing the overall picture on the markets, we believe that it is very possible that markets' general consolidation dynamics will remain until the end of this week.
Forecast of the day:
The AUD/USD pair is trading above amid continued demand for risky assets. The price broke through the level of 0.7745. If it consolidates above it, growth will continue to 0.7800.
The USD/CAD pair is trading near the level of 1.2685. We believe that it may still possibly decline to 1.2625.