The markets were shaded by fears again that the US economy, amid a pandemic, the inability of Congressmen from Democrats and Republicans to agree on the measures proposed by D. Trump to help the population amid coronavirus infection, as well as weak data on the country's economy, will recover extremely slowly.
What happened and how bad is it?
On Thursday, data on the American economy came out, which turned out to be significantly worse than expectations and values for the previous period under review. According to economic statistics, the number of applications for unemployment benefits rose to 1.106 million against the forecast of decline to 925,000. The value of the index of manufacturing activity from the Federal Reserve Bank of Philadelphia fell to 17.2 points in August against the forecast of decline to 21.0 points and the July value of 24.1 points.
These data reinforced the negative, which was initiated on Wednesday by the published minutes of the July meeting of the Federal Reserve on monetary policy. Of course, investors could not stand aside. On this wave in Asia, Europe and North America, trading on Thursday passed in a negative zone. Demand for risky assets, assets of the commodity market was under pressure. Nevertheless, there has been a marked increase in interest in protective instruments - the US dollar, Japanese yen, Swiss franc and US Treasury bonds.
Observing everything that happens, the question arises, how serious is all this and what can be expected?
In our opinion, nothing critical has happened. Everyone already knows that the US economy is under the strongest pressure from COVID-19, which forces again and again one State or another to carry out preventive quarantine measures, expressed in the partial or even complete closure of regions. To simply put it, if this negativity turns from a one-off phenomenon into a long period in the future, then, of course, we will see a strong growth in demand for the US dollar, yen and franc, along with Treasuries. As for the growth of gold, we do not see any factors contributing to this so far.
Will we see a new wave of dollar growth?
Of course, such a possibility exists, and here, such a scenario should be most likely considered as a result of the start of profit-taking on the American stock market and the departure of investors to defensive assets. Even more, the local stock market should be recognized, according to the dynamics of the main indexes, either it has already tested a pre-covid level, like the S&P 500, or it has already overcome it long ago, like the NASDAQ or still has not reached it, like the Dow industrial index.
In this case, the dollar will only receive support against all major currencies except defensive ones. But we believe that from a temporary point of view, if this happens, it will not be global in nature. Most likely, we will witness a local surge of pessimism, which will be neutralized by new and positive data on the US economy.
Conclusions
The dynamics of the world markets on Thursday and the Asian trading session on Friday showed that the decline was still of a local, temporary nature. We believe that, perhaps, t after some corrective movement, everything will return to square one and the dollar will resume its downward movement in the currency markets.
Forecast of the day:
The EUR/USD pair found support at 1.1830 and turned up on a wave of better risk mood among investors. We believe that breaking through the level of 1.1900 will lead to the resumption of growth to 1.1965.
The USD/CAD pair resumed its decline in the wake of the rise in oil and improved mood in global markets. We believe it is possible to resume its selling after breaking the level of 1.3150 with a likely decline to 1.3100.
