The global markets were mixed last week. The world stock markets, with the exception of Chinese, Taiwanese and South Korean, noticeably increased, while the currency market continued to consolidate, and crude oil prices resumed their decline after an upward rebound.
Following Monday's collapse, global stock markets recovered, and the three US stock indexes updated the local highs again. This behavior of the stock markets can be explained by the results of good corporate reporting of companies. If on Monday, investors were fully concerned about the expansion of the influence of the Indian COVID-19 strain in Europe and America, which resulted in large-scale sales, then starting from Tuesday, the mood has dramatically changed. In our opinion, this was due to the assessment of the local drop in the indices as a short-term correction, on which the shares of companies were bought off again. And the shift in focus from the problems of COVID-19 to corporate reporting only supported this rebound.
What should be expected from stock markets?
If the media does not talk about the Indian strain of COVID-19 again, then the market focusing on corporate reporting will push the stock indices upward. The super soft monetary policy of the world Central Banks led by the Fed contributes to this.
As for the currency market, everything is still extremely unclear and ambiguous. The ICE dollar index continues to consolidate just below the 93.00 point mark. Of the main currency pairs, the USD/CAD pair rose most noticeably against the US dollar, which was due to the pullback in crude oil prices. At the same time, the pound fluctuated amid the ambiguous economic statistics.
The Australian and New Zealand dollars ended the week differently. The AUD slightly declined against the USD, while the NZD rose. On the wave of growing demand for risky assets, the Japanese yen declined against the US currency. The final decision of the ECB calmed down the euro in an attempt to continue its growth against the dollar. The pair lost 0.2% after the results of ambiguous trading. Gold was also uncertain where to move, remaining in a sideways trend.
What should be expected from the currency market this week?
Despite the warm assurances of J. Powell and C. Lagarde that the monetary exchange rate of these largest world central banks will be maintained as long as necessary, we believe that investors understand that the risks of a sharp change in monetary policies are very likely, especially in the US in view of a weak labor market and high inflation.
As before, we believe that the general vague dynamics in the currency market will continue until the end of this week. Before making important decisions on trade, investors will want to see the latest American employment data, which will be presented next week.
How will oil prices behave?
We believe that it is too early to assess the local rebound in crude oil prices as an upward reversal. The data on oil and petroleum product inventories released last week does not inspire optimism. Their noticeable growth against the expected decline amid a slowdown in business activity in the manufacturing sector, which was signaled by statistics data last week, may indicate a decrease in oil consumption, which will lead to overstocking in storage facilities and, as a consequence, pressure on prices.
Assessing the overall outlook in the markets, we should not expect significant changes, since the main factors such as COVID-19, corporate reporting of companies, vaccination of the population of economically developed countries, and the slowdown in economic activity amis the summer vacation period will restrain the formation of unambiguous trends in all markets without exceptions. Still, we believe that this picture will continue until the end of the summer.
We do not expect anything new from the Fed meeting. Most likely, the regulator will confirm its desire to keep the current monetary rate unchanged, which will put pressure on the US dollar.
Forecast of the day:
The EUR/USD pair found support at the level of 1.1756. If it breaks through the narrow range of 1.1756-1.8000, one should expect its local growth to the level of 1.1820, and then to 1.1850.
Gold is balancing below the level of 1808.65. If the United States supports the negative dynamics of European trading today, which is very likely, then gold will rush to the level of 1833.00 after breaking through the specified mark.
