FX.co ★ Will the expected rebound after yesterday's collapse be a worthwhile reversal?

Markets were strongly affected negatively by the coronavirus again, which reminded itself through the spread of India's delta virus throughout Europe and the United States.

The global stock indices noticeably declined following the results of Monday's trading. It is obvious that the topic of new outbreaks of COVID-19 infection played a significant role, but in our opinion, it was already clear that this universal infection would not disappear so easily, so the news about new problems regarding the coronavirus was used by investors as an excuse to correct stock indices that were unreasonably raised up.

There was already a downward correction before Monday, so it is not right to assume that the COVID-19 topic alone caused the collapse.

Earlier, it was repeatedly mentioned that the uncertainty of whether the Fed will continue to maintain a super-soft monetary rate indefinitely or not is the most important factor of influence on the markets. It still remains the leader among the news and events coming to the market.

Today, the dynamics of futures for European and American stock indices show a high probability of a rebound, which is natural after yesterday's collapse. But will this rebound become a reversal in investor sentiment? Will it allow the markets to forget about the existing problems?

We believe that it will not. It should be noted that neither the problems of the COVID-19 pandemic, nor the factor of uncertainty in the future monetary policy of the Fed and, in general, the world central banks, which are guided by it, will not disappear like a morning fog. There will be a rebound, but it will most likely be local and will allow bearish-minded traders to sell again, only at higher levels.

The situation in the currency market remains extremely dull. The ICE dollar index received local support on Monday but remained in the range of 92.00-92.80 points. However, it should be recognized that it has come close to the level of 93.00 today, which indicates the continuing concerns of investors about the sustainability of global economic growth amid a new surge of COVID-19.

An important signal for the market is the almost vertical drop in the yield of the US Treasuries, which indicates a strong demand for government bonds as a protective asset.

Assessing the overall picture of the markets, we believe that today's expected rebound after yesterday's collapse will be limited. Thus, we believe that stocks, as well as crude oil contracts, should be bought with high caution. In this situation, it is not suggested to sell the US dollar.

Forecast of the day:

The AUD/USD pair remains under strong pressure amid falling demand for commodity assets and the strengthening of the US dollar. The price fell below the level of 0.7325, which may be the basis for its fall to 0.6265.

The GBP/USD pair is trading below the level of 1.3665 amid news of the cancellation of tough restrictive measures, which seems to raise concerns among investors that this virus will strongly spread again across the UK. Most likely, the pair will decline to the level of 1.3560 on this wave of events.