After the Easter holiday, trading continues to be very slow. The markets have nothing to focus on and the demand for risk is low. The FOMC minutes also did not bring anything interesting. In this case, the US stock markets closed with the S&P 500 rising slightly by 0.15%, indicating the lack of ideas.
Meanwhile, the US trade deficit increased in February to 71.1 billion, which is 3.3 billion more than a month earlier. The deficit since the year began has grown by 56.5 billion against last year, and negative dynamics is observed in all components – exports are declining, while imports are rising.
The IMF published its updated forecasts on April 6, in which the driver for the global economic recovery is expected to be assigned to the United States. Most likely, this country will be able to play the expected role, but it should be remembered that the growth rate of the ratio of public debt to GDP is also sharply accelerating. It can be said that the dynamics is already noticeably worse than in Japan or the Eurozone.
According to US President Biden and Fed Chairman Powell, America's fiscal deficits and debt are not a serious issue as interest rates remain low. Although this is true, inflationary expectations are also growing at a high rate and the risk of a stalemate is increasing, in which the Fed will have to respond by raising rates. However, this is unlikely due to the threat of a sharp increase in the cost of servicing government debt.
In a 17-page report, U.S. Treasury Secretary Yellen outlined the details of the proposed changes that would help pay for Biden's $ 2.25 trillion infrastructure plans and other costs. Along with the planned increase in the US corporate tax rate from 21% to 28%, the proposed minimum tax of 15% will be imposed on both foreign and domestic profits, which will increase the tax paid by removing the incentive for companies to transfer investments abroad. Looking at Yellen's presentation, the plan looks a little softer from the original version, but there is no guarantee that this will go to Congress, since it turned out that some Democrats are against its current content.
The euro exchange rate has slightly changed over the past two days. A certain role was played by the PMI indices published at the beginning of the week, which were slightly higher than expected and partially offset the reasons why the euro was actively sold off in the futures market.
The continuing lower inflation expectations in the EU compared to the US remains to be the main driver that puts bearish pressure on the Euro currency. Here, inflation rose to 1.3% in February but such a growth is due to temporary factors while core inflation has declined.
The euro failed to break through the support level of 1.1695, which is a 38.2% correlation to the growth that started a year ago. Now, the euro will look for a local top to form a new wave down. This peak can be found in the zone of 1.1930/60, while the long-term euro is still under bearish pressure. The target is at 1.1600.
The pound looks worse than the euro this week. One of the clear reasons is the loss of a positive driver from high vaccination rates. The main vaccine for the UK is AstraZeneca, which has accumulated too many questions. The EU has officially announced that it sees a link between AstraZeneca and post-vaccination thrombosis, while Britain has stopped vaccinating people under the age of 30, which is obviously a recognition that such a link is likely to exist. It should be noted that reducing the vaccination rate negates all the previously achieved advantages.
In terms of the economic calendar, the PMI for the services sector declined from 56.8p to 56.3p in March. The dynamics is worse than in the US and the Eurozone. At the same time, the growth in the EUR/GBP rate to its high since early March suggests that the British currency will look worse than most G10 currencies in the next few days. There is a high probability that the support of 1.3665 will breakdown, after which a sharp decline to the support zone of 1.3440/90 can be expected.