The previous week turned out to be positive for stock markets amid a number of events that are likely to be long-lasting.
It can be recalled that the Fed's monetary policy meeting was held last week, which confirmed the idea to begin reducing stimulus measures with the end of this process in the middle of next year. This news was expected by the markets, so it did not become a strong driver for the US dollar, as the markets already won them back earlier. However, the lack of clear plans for the timing of the start of interest rate hikes and, the "dovish" tone of J. Powell at a press conference, when he said that the bank would act on the basis of developments and that the regulator still considers the inflation growth to the 5.4% mark temporary, were negative news for the US currency, which had previously been growing in general mainly due to increased expectations of an earlier increase in interest rates.
What can be expected in the markets for the near future?
In general, we believe that the Fed's continued soft monetary rate, despite the start of the process of reducing the quantitative easing program, will support not only the American stock indices but also others. The market also hopes that the news of the COVID-19 drug from Pfizer, which has shown excellent results in clinical trials, will lead to a final solution to the coronavirus pandemic, with all the ensuing positive results for the global economy.
On this wave, we can expect an increase in the number of new jobs in America and an increase in business activity, which can put pressure on US inflation and in the world as a whole, The new $1 trillion infrastructure stimulus program proposed by Congress will only support this process.
With regard to the dynamics of the dollar exchange rate in the near future, we note that it can grow smoothly against the major currencies, but in general, it is likely to be in the "sideways", since a strong incentive for its growth, which is the promising increase in interest rates, is postponed indefinitely.
Meanwhile, crude oil prices are likely to be supported by broad demand before the winter but are unlikely to rise above recent highs. Therefore, we believe that oil contacts should be bought on a decline for Brent from about $ 81.00 per barrel, and for WTI from 79.00.
In conclusion, we believe that the important news about the early start of production of medicines for coronavirus infection will stimulate increased demand for shares of companies seriously affected during the pandemic – air carriers, travel companies, and the like, but on the contrary, the shares of those companies that earned, relatively speaking, on the "remote", maybe under strong pressure.
The US dollar is likely not to change much against major currencies, and crude oil prices will remain in a sideways range this week.
Forecast of the day:
The AUD/USD pair remains under pressure. If it still does not rise above the level of 0.7425, it might further decline to the level of 0.7380, and then to 0.7325.
The GBP/USD has pulled back to the level of 1.3475 and is now above it. A decline below this level may lead to the pair's continuous fall to 1.3400, and then to 1.3300.
