The US dollar continues to gain support in the currency market, despite the stabilization of US Treasury government bond yields. Meanwhile, the stock markets are consolidating, moving in a sideways direction.
Investors' attention is still focused on the dynamics of US government bonds yields, which made a downward correction and stabilized after reaching local highs. This slightly calmed the markets, but the lack of a serious pullback is still keeping investors attentive, forcing them to be cautious.
In the stock market, this behavior is characterized by a prolonged consolidation period of stock indices due to multi-directional influence of strong factors. On the one hand, the positivity comes from the expectation of an active economic recovery of the world on the wave of massive vaccination of the world's population, as well as large-scale measures to support national economies in economically developed countries. But on the other, the negativity lies on the high probability of a sharp inflation growth, primarily in Europe and the US. This will ultimately force local central banks to start rolling back stimulus measures and eventually raise interest rates to contain inflationary pressures.
As for the currency market, everything that happens depends on the same factors as in the stock markets. The fears of an uncontrolled inflation growth in the US and Europe, which are manifested in a sharp surge in the growth of government bond yields, have led to a drop in demand for risky assets and accordingly, restrain the appreciation of commodity currencies. This primarily applies to the Australian, New Zealand and Canadian dollars.
Today, there is a continuation of dynamics of the US dollar's strengthening in line with the general sideways trend. This week, the market's focus will be on the speech of Fed Chairman J. Powell, as well as the publication of US employment data. They expect the Fed's head to say supporting words for the stock market, who repeatedly say that he will not change the monetary exchange rate for several more years in any way. But the question arises: will investors believe his words or not?
The US labor market is expected to provide updated data on the number of new jobs for the past month. It is expected that the market will grow by 180,000 in February against 49,000 in January, which is enough and will indicate continuing negative trends in the US economy. It is still difficult to say how the market will react, but it is very likely that the current sideways dynamics will continue.
Forecast of the day:
The EUR/USD pair is staying close to the strong support level of 1.2025. If it consolidates below, the price may decline to 1.1960. But if the price holds above this level, the pair is likely to grow locally in line with the sideways trend towards 1.2165.
Gold's price has found support at 1706.55 and is making an attempt to recover. It is likely to rise to the level of 1732.75, which will correspond to the 23% retracement of the Fibonacci, before resuming the decline to 1682.00. The main negative for gold prices is the continued demand for risky assets.