The current week ends on a positive note for the European and American stock markets, which instills some optimism in the mood of investors.
After the markets were worried about the rising cases from the Indian strain of coronavirus on Monday and there were quite wide sales in this context, which led to a decline in stock indices, large-scale purchases were already noted on Tuesday and Wednesday, which indicated that the correction in the stock markets of Europe and America was probably over.
Investors got tired of watching the topic of COVID-19 and switched their attention to the corporate reporting season, which generally shows positive dynamics. In addition, their belief that the world's central banks, led by the Fed and the ECB, will continue to support economic growth, despite the problems of high US inflation or the difficult situation with coronavirus infection both in the United States and in Europe, supports the demand for company shares.
As for the results of yesterday's ECB meeting, it did not bring any surprises, which supported the demand for European stocks, while the euro remained stuck against the dollar at the level of 1.1770.
What to expect in the currency market?
Clear signals from the Fed and the ECB show that we should not expect a change in monetary rates from the world Central banks in the near future. This suggests that the situation on the currency market will continue to remain uncertain. The struggle of several multidirectional factors – the influence of COVID-19, the soft monetary policies of the largest central banks, the risks of delaying inflation at a high and unacceptable level for the US Fed, the not so confident growth of the world economy all leads to the fact that the currency market cannot decide on the direction in its classical sense when changes of the same global trends occur amid global changes.
Unfortunately, the lack of a clear picture in the markets will continue to contribute to the production of such a situation. We believe that the real outlook can only change after the Fed's forecast regarding the prospects for inflation was correct or not becomes finally clear and it seems that this can only happen around autumn. So far, it can be observed that it is not being implemented. The latest data showed an increase in inflationary pressure of 5.4%, which is significantly higher than the acceptable level of 2.0%.
It can be assumed that if inflation remains at a high level and even if it does not continue to grow, but at the same time, it will not decline – this will still force the Fed to take radical measures and start turning the monetary course towards its tightening. But it will not be soon, so the current uncertainty in the market will remain.
Today, our attention should be focused on the publication of business activity indices in the manufacturing and service sectors, both in Europe and in America. In general, forecasts show a slowdown in the growth of these indicators.
We believe that if they show slight growth, this will support the demand for shares of companies in both Europe and the United States. In view of this, the US dollar may slightly give up its positions, but not so significantly due to the influence of the multi-directional factors listed above.
In terms of next week's forecast, we believe that the general outlook in the market will not change.
Forecast of the day:
Gold continues to consolidate in the range of 1791.65-1808.65. The lack of clear, both negative and positive signals, counterbalances the XAU/USD pair. Nevertheless, it could get support if the data of the business activity in the service sector and in the manufacturing sector in the US turns out to be higher than forecast. In this case, gold's price will rush to 1824.00 after breaking through the level of 1808.65
The GBP/USD pair is heading lower amid weak UK retail sales data. The pair is declining below the level of 1.3750, which could lead to a fall towards 1.3670.