On the stock market in the United States, they continue to wonder what is happening. A correction or the beginning of a full-scale decline, symbolizing the change in the long-term bull trend, to a bearish one. So far, investors do not seem to have a clear understanding of this process, which leads to the continuation of the still gradual decline in major stock indexes.
In our opinion, three important factors will continue to adversely affect the local stock market. This is a growing trade war, turning into a geopolitical and geostrategic confrontation between Washington and Beijing, which already raises concerns among investors that the States will not avoid a slowdown in economic growth. The second reason is the Fed's persistent decision to continue the cycle of raising interest rates, which is accompanied by an increase in the volume of the regulator's balance to be reduced. And the third cause for concern is the rise in yields on US government Treasury bonds.
As for the first factor, a lot has been written and said about it, so we will not comment on it. But the Fed's persistent desire to raise rates received a rationale from the mouth of its recent leader, J. Yellen, who said on Monday that she's "concerned about the possible overheating of the economy" and that "GDP growth of 3.0%, although excellent, is unlikely to be sustainable". It seems that the current head of the American Central Bank, J. Powell, understands this very well and therefore follows by tightening the cost of borrowing and withdrawing liquidity from the financial system so that the economy does not fall into a new recession, but only experienced a soft landing against the backdrop of wave of three programs of quantitative easing (QE).
As for the dynamics of the debt market, it directly depends on the Fed's actions, so the process of raising rates will help increase the yield of treasuries, and they, in turn, will support the dollar.
In our opinion, despite the fact that many in the market believe that the dollar has fewer and fewer prospects for continued growth against major currencies and that it may even turn down against them, we are of the opinion that all the above factors affecting the market US stocks will, at best, support the rate of the American currency, and at worst, not allow it to decline markedly.
Forecast of the day:
The currency pair NZD / USD is trading at 0.6590. Its growth was due to the local weakness of the dollar. If negative sentiment again prevails in the market, the pair may turn down and fall to 0.6495.
The USD / JPY currency pair is trading below the level of 112.20 and above the support line of the short-term uptrend. If the pair does not grow above the level of 112.20 and does not consolidate, then on the wave of negative investor attitude towards risk, it may turn down and rush to 111.65.0, and then to 111.30.
