Based on the previous week's results, the global markets remained in the same positions during the start of the week. The stock indices are still staying in narrow side ranges, while the prices of crude oil are rising continuously. In addition, the position of the US dollar has strengthened in the currency markets.
Markets' dynamics has recently been completely dependent on the belief of active growth in the economic recovery, which is supported by the massive vaccination of the population of economically developed countries, as well as growth of business and industrial activity, which is still enough to keep stock markets in the consolidation period, albeit being uneven.
Moreover, the growth in US Treasury government bond yields remains to be in focus. Last Friday, the yield on the 10-year Treasury benchmark reached its highest level (1.6250%) since the COVID-19 pandemic began. This is considered to be a strong positive factor for the US dollar, while negative for the US and other stock markets. It is clear that investors are afraid that the inflation rate will sharply increase and stay at pre-high levels for a long time. If this happens, the Fed will now have a reason to start the process of normalizing monetary policy, which will begin with a reduction in the volume of government bond repurchases and may later lead to the beginning of the process of raising interest rates.
In our opinion, the only thing that keeps the US stock market from collapsing are the statements of the Fed members and Chairman, J. Powell that inflation growth will continue to be temporary. Given the current condition, we believe that the consolidation period in the stock market may last for this week.
The situation in the currency market, in turn, is slightly different. It was previously mentioned that the growth in Treasury yields is the strongest supporting factor that at least keeps the USD rate against a basket of major currencies in the sideways direction, and at most contributes to its strengthening. However, the problem is the huge presence of the growth of aid package to support the US economy and its citizens. This was previously adopted and is expected in line with the new stimulus measures, amounting to $ 1.9 trillion.
Analyzing the current situation, we believe that last week's trends will continue this week in the global currency markets.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.1900. We expect it to further decline to 1.1800 amid the rising yield.
Gold is trading below the key level of 1700.00. It will be under pressure from the US dollar's strengthening due to the updated growth in Treasury yields. Thus, we expect it to further decline to 1669.00.
