The currency market is almost in stagnation while waiting for new data on America's consumer inflation. As for the stock markets, the activity is not quite weak.
It can be recalled that all the attention of the markets switched to the published inflation data since the beginning of the new year, namely from the time when the Fed announced that it expects a strong rise in US inflation on the wave of unprecedented massive support measures from the government in the form of "helicopter" money, which the Biden administration began to provide support the population in view of the COVID-19 pandemic.
On Thursday, the May consumer inflation figures will be released. According to the forecast, consumer inflation in annual terms will surge to 4.7% against 4.2%, while monthly growth will slightly slow down from 0.8% in April to 0.4%. However, all the market's attention will still be focused on the emerging values of basic consumer inflation. Here, the core consumer price index in May should add 0.4% against 0.9% in April. The annual value of the indicator should increase by 3.4% against 3.0% for the previous period under review.
The forecast of expectations shows that the rate of inflation growth in May may slow down a little bit and this will be an important signal for investors. If the data does not turn out to be higher than expected values, and maybe even slightly lower than them, then this may cause a wave of hopes in the market that the inflation rate will slow down and stabilize as the Fed's previously assumed. If so, one can expect a surge of investor inclination to risky gambling. This will be the reason for the resumption of purchases of shares of companies and the weakening of the US dollar.
The fact is that the reason for such sentiments will be the hope of investors that the US regulator, seeing that the rate of inflation growth is slowing down and may even stop in the second half of this year, will simply not change the course of its monetary policy at an earlier time, as it would be possible. This will be a strong incentive to resume the growth of stock indexes in the United States since there is more than enough dollar liquidity in the financial system.
In addition, it should be noted that if the data on inflation indicators turn out to be higher than expected, then this will cause a drop in demand for company shares, a decrease in the US stock indices, and an increase in the dollar rate.
As for today's general dynamics, we believe that it will be unimpressive and, possibly, multi-directional and volatile in the stock market, as well as in the currency market.
Forecast of the day:
The EUR/USD pair is practically not moving in anticipation of US inflation data and the ECB's monetary policy decision, which will be announced on Thursday. We believe that the pair will remain in the range of 1.2155-1.2200 today. But, it can both start to grow to 1.2265, and vice versa move to 1.2100 tomorrow based on the results of the ECB meeting and the published values of consumer inflation.
The USD/CAD pair is trading in a range in anticipation of the final decision on the monetary policy of the Central Bank of Canada. Surprises are not expected here. Keeping the bank's monetary policy unchanged and rising oil prices will lead to a local decline of the pair to the level of 1.2060, but the pair itself will remain in the range indicated above. There will only be significant changes in its dynamics after the publication of data on US inflation.
