The rally in the markets is over. What's next?

After the end of the New Year rally in the markets of risky assets, first of all, the shares of companies, by the end of last week, their stabilization was outlined. Investors have completely won back the positive, in their opinion, news about the resumption of talks between Washington and Beijing on mutual trade, as well as expectations that the Fed will pause in the first quarter of this year in raising interest rates.

In the wake of this dynamic in the foreign exchange market, the weakening of the US dollar, which was falling in the last days before the new year and at its beginning, also stopped. The main reason, we recall, was the increase in expectations that the Fed would pause in the further active increase in interest rates. The very "soft" statements of a number of members of the American regulator, as well as its leader J. Powell only strengthened the growth of these sentiments.

After the publication on Friday of the latest data on consumer inflation, it became clear that, despite its slowdown in annual terms last month to 1.9% from 2.2%, the basic value of the consumer price index kept the previous growth rate of 0.2% on a monthly basis.

Another important point was the data of the dynamics of real disposable cash income of Americans. The indicator showed a sharp increase of 0.7% in December against the previous value of -0.1% and an increased forecast of 0.3%.

The numbers clearly indicate that maintaining a strong labor market, as well as wage growth may again lead to increased inflationary pressure and force the Fed after a possible pause in the process of raising interest rates in the first quarter, then resume their active upturn, which is likely lowered to the ground many market players, who were dreaming that the Federal Reserve would not only pause in raising the cost of borrowing but even begin their decline.

Today, investors will again be drawn to the speech of J. Powell, who may somewhat adjust his last position regarding the prospects for the interest rate increase process due to the strong growth in incomes of Americans and, probably, unfounded hopes that the Central Bank will stop this year, interest rates increase.

Forecast of the day:

The currency pair USD / CAD found support at 1.3200. The resumption of lower oil prices, as well as the stabilization of the dollar against the background of the New Year rally, may cause further local price growth to 1.3350.

The currency pair USD / JPY is consolidating above the mark of 108.00. We continue to expect its decline to 106.80 in the wake of falling demand for risky assets and the renewal of the uncertainty factor by the prospects for the Fed's monetary policy after the release of strong data on the growth of American income.



The material has been provided by InstaForex Company -