The global stock markets showed a recovery in a positive mood on Monday. On one hand, this was supported by the desire of many market players to buy company shares that fell in price during the correction, and on the other, it was due to the persistent statements of Fed members, who were not so pessimistic about the prospects for the US economy on the wave of what they believe is a temporary inflation growth.
After several days of sell-offs on the first day of the new week, cautious optimism has returned to the markets, which is supported by investors' hopes that a strong increase in US inflation this spring will be local. In any case, Fed members strongly lobbied for this idea, believing that the labor market, as well as economic growth, would resume recovery.
The strong upward rebound in stock indices was supported by the general idea that the previously noted decline was part of a technical correction amid the flow of negative news and the outcome of the Fed meeting, which reinforced fears that the regulator would begin tightening monetary policy earlier than expected. But yesterday's statement by a number of representatives of the US Central Bank made it clear that we should not expect any changes in the course of monetary policy. Powell's speech in Congress today may support these sentiments.
It is assumed that the Fed Chairman will only talk about positive expectations for the country's economic growth and increased employment. In addition, he will likely mention again that the rise of inflation is a temporary phenomenon and that it will decline to the level of 2.0% anytime soon. The most important thing that will strike the heart of market participants is his assurance that the Fed will do everything it can to support the economy, whatever it takes to complete the recovery process.
If Powell does not deviate from the content of his rhetoric, he will tell the markets that the regulator will be ready to allow some overheating of the economy in order to support economic growth.
The expectations of his speech already support the positive dynamics of futures on major stock indices in both Europe and the United States. It is also possible that it will increase the demand for risky assets and lead to a downward correction in the US dollar, which began on Monday.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.1920. if Powell's speech is positive, it will lead to the pair's continuation of upward correction to 1.2000. We consider it possible to buy the pair after it rises above 1.1920.
The USD/CAD pair is consolidating above the level of 1.2345. The growth in oil prices and Powell's negative speech for the US dollar will lead to a further decline to 1.2265.
