The previous week was quite calm for the global currency markets. The completion of the release of corporate reports of leading companies in both Europe and the US and the lack of new strong drivers to stimulate demand for risky assets, resulted in a slight correction in stock indices, which moved into a consolidation phase.
Regardless of the fact that stock indices have no new reasons to grow, they still hold near to the previously reached highs. The main reasons for this still remain unchanged – this is primarily the continuing hopes for a strong economic recovery in the West in particular and the world as a whole. This includes the topic of vaccination, as well as the expectation of new large-scale incentives totaling $ 1.9 trillion, which are expected to be approved by the end of this month. These reasons prevent the markets to significantly make a downward correction, although investors clearly understand that a huge financial bubble is forming in the currency markets, which can burst at any time if something goes wrong. Apparently, market participants are still largely confident that they still have a time lag that allows them to earn profit for all the above-mentioned reasons.
It should be noted that these reasons are considered to be strong factors in the growth of demand for commodity and raw materials assets. The quotes of the two benchmark oil brands have already passed the $ 60 per barrel mark, which is a strong incentive for the growth of commodity exchange rates. However, it is restrained by a strong increase in the yield of US Treasuries, which already support the rate of the US currency. Due to this, there is a broadly sideways dynamics in the Canadian dollar and Norwegian krone pairs. On the other hand, commodity currencies such as the Australian and New Zealand dollars continue to sharply rise, which is stimulated by the growth in demand of China's export products from Australia and New Zealand.
How long can this lull last?
From our point of view, such a current condition will continue until it becomes clear how much of the real amount from J. Biden's proposed stimulus package amounting to $ 1.9 trillion, will be approved. So far, investors believe that the $ 1.5 trillion will fall on the currency markets, while the rest of the funds will go to the population and business. These expectations are the most important condition for maintaining optimism. But, if a much smaller amount is approved, it can become a serious reason for the start of a large-scale correction in the stock markets, which will lead to the dollar's simultaneous strengthening.
Considering this week's prospects, we believe that the previous general dynamics will happen again.
Forecast of the day:
The EUR/USD pair is trading in the range of 1.2025-1.2170, which will continue to do so this week. In terms of today's possible dynamics, we believe that the price declining below 1.2110 level will become the basis for the pair to further decline to 1.2025.
The AUD/USD pair, which already reached the local high, may make a downward correction to the level of 0.7800 if it breaks through the level of 0.7865.