After the turbulent events of last week, when global stock markets came under extensive sales in the wake of growing fears that the world economy could not only slow down growth, but also start a reverse movement downward, amid the consequences of a trade war between Washington and Beijing and under the influence of the explicit protectionist policy of the United States, by the end of the week, market passion subsided somewhat, but did not completely disappear.
Observing the development of the situation in the markets, we note that investors seem to have paused, waiting for further developments. In our opinion, it is too early to hope that everything has settled and the situation has returned to normal. The main reasons that excite the markets have not disappeared anywhere, and the local rebound in the markets in a positive direction can be explained by the banal profit taking.
As for the factors that are long-playing, this is, of course, a trade war between the United States and China, which is already gradually developing into a geopolitical and geostrategic confrontation. We are confident that this is the main reason for the current high volatility will have a negative effect on financial markets for quite some time. Another reason is the desire of the Fed to normalize monetary policy. In the wake of the trade wars turmoil, the market players somehow stopped paying attention to this really important reason, which, together with the decline in the balance of the American regulator, puts pressure on the US stock market and the amount of dollar liquidity that caused the formation of financial bubbles in America growth of investor interest in the assets of emerging economies.
Raising interest rates by the Fed, as well as the process of reducing liquidity, will put pressure not only on the US stock market, but throughout the world. At the same time, in our opinion, the US dollar will also react nervously to market volatility. It is likely that in the foreseeable future, before the elections to the US Congress, the dollar will receive support amid a decrease in tensions in the markets and will be under pressure with its growth. This behavior can be explained by a purely psychological factor of market players, and not by economic data and market developments.
Forecast of the day:
The currency pair EUR / USD is trading above the level of 1.1530. It will probably remain in the range of 1.1530-1.1605, growing up in anticipation of the Brexit summit to be held this week. Only a stream of negative news can push the pair below 1.1530 and cause it to fall to 1.1445.
The currency pair AUD / USD is trading above the level of 0.7090. It is also likely to be in the range of 0.7090-0.7130, but if sentiment in the markets changes in a positive direction, it can grow to 0.7170, but for this, it will have to break out of the range. At the same time, the negative can push the pair to a local minimum of 0.7040 after overcoming the level of 0.7090.
