The events of the last two weeks clearly show that investors are not ready to fully enter the market for cheaper shares of companies against the background of coronavirus. This dynamic is also fully confirmed by the behavior of the US dollar.
Last week, a generally positive attitude of investors towards buying stocks of companies was noted in the markets. On this wave, government bonds of economically strong countries were sold, the demand for safe-haven currencies such as the yen and the Swiss franc, decreased, and the dollar declined significantly against major currencies. The reason for this was the announcement by the Fed, the US Treasury, and other major global Central Banks of the broadest incentive measures. But this week, the mood turned 180 degrees, already against the background of the first economic statistics coming out over the last coronavirus time. They turned out to be extremely negative for Europe and America, although on the contrary, the figures from China were optimistic.
Why does the market react like that? This is due to the fact that there are reasonable expectations that until demand in Europe and North America is restored, and these are the main consumers of Chinese products, active production in the PRC will stall because there is no one to buy its products. Therefore, the markets stopped responding last week, and the dollar weakened.
In our opinion, this situation will continue until the situation with coronavirus infection in these regions stabilizes. In the meantime, investors will exercise extreme caution. We believe that stocks of companies will be bought at local falls, but volumes will remain low. The dollar will also move in pairs with the main currencies in the "sideways", nervously breaking out up and down.
Now, all the attention of market players will be turned to the publication of data on employment in America on Friday, and today to updated values on applications for unemployment benefits. In this regard, applications are expected to increase by 3.5 million from the previous value of 3.283 million.
So far, stock index futures have shown positive dynamics before the opening of trading in Europe. We believe that it is a kind of strip-wagon. A fall and then growth will continue. On this wave of market behavior, it can be assumed that the American currency may come under pressure against major currencies.
Forecast of the day:
The EUR/USD pair is trading below the level of 1.0970. The positive mood on the trading floors with the opening of Europe may be the reason for the limited growth of the pair. Its increase above the level of 1.0970 will lead to an increase in the price to 1.1035.
The USD/CAD pair is gradually falling amid strong growth in oil prices, which are adding more than 10%. The preservation of such dynamics in the wake of the positive opening of Europe may lead to continued decline in the pair, first to the level of 1.4000, and then to the level of 1.3920.
