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Forex Traiding

The US dollar is starting to dictate its terms again. Stock markets and the cryptocurrency market enter the next

DATE OF PUBLICATION: 2021-02-26 09:39:02 The US dollar remained weak yesterday through the first half of the day after repeated statements by Federal Reserve Chairman Jerome Powell that interest rates will remain close to zero for the foreseeable future. However, everything changed after the release of a number of fundamental reports on the American economy, which led to a sharp rise in the dollar against a number of world currencies. The increase in Treasury yields once again shows investors’ unwillingness to take risks. The rapid decline in risk appetite, fueled by higher US yields, appears to be making the US dollar feel more confident. A study was published yesterday showing industrial and consumer price increases in the US this year. Industrial materials prices rose sharply amid strong demand and supply disruptions. The industrial commodity index has already exceeded the highs of 2012-2013 and continues its rapid growth. In a survey of a number of companies, their executives said they were ready to raise prices for their products and services without any serious damage to the business. The rise in prices that we have recently observed is a consequence of higher costs. Many companies expect further price increases as economic growth accelerates. In turn, such conversations lead to even greater debate on the topic of whether US inflation will rise after the end of the pandemic. The answer is obvious – it will, especially considering that the next package of assistance to the economy in the amount of 1.9 trillion US dollars will be adopted in the near future. Such expectations are a consequence of the sharp strengthening of the US dollar, as this increases the risks for the Federal Reserve zero interest rates at previous levels, in every possible way disavowing any price spike that will occur after the coronavirus pandemic. Yesterday, the Fed chairman recalled that he is ready to allow inflation to go beyond the target value of about 2.0% in order to compensate for its lack in previous years. “Our policy will continue to be stimulating, as inflation remains at a low level and the labor market is far from maximum employment,” Powell noted. The fact that prices for a number of goods are overpriced by some indicators does not indicate a stable formation of inflationary pressure in future. As an example, Powell drew attention to the rise in car prices due to chip shortages and supply chain disruptions in the tech industry. “This phenomenon will not necessarily lead to sustained inflation, as inflation is a process that repeats itself from year to year,” he said. Responding to numerous questions from lawmakers about the risk of overheating the economy – with additional government assistance and continued support from the central bank – the Fed chairman reiterated his view that there is still a long way to go before the economy returns to pre-crisis levels. bonds suggests that investors do not fully trust the leadership of the Fed and are ready to rely on the figures at their disposal. Rising yields are also strengthening the US dollar. Atlanta Fed President Rafael Bostic said yesterday that as growth in the US recovers faster than expected, the Federal Reserve will continue to focus on supporting the economy and, in particular, the labor market. which is still in crisis after losing 10 million jobs. This suggests that some representatives of the Fed do not hide their optimism about the pace of economic growth, but they are trying to adhere to the course set by Paell to maintain a super-soft monetary policy in the future. Bostick has beautifully played on the topic of inflation, shifting all attention to the labor market. “Let me remind you that our goal is full employment,” Bostic said during a virtual speech at a banking conference. However, according to the latest reports, yesterday’s fundamental data once again confirmed the calculations of investors, who are betting on a sharper economic recovery and inflation after the coronavirus pandemic. The US labor market is already showing growth, which confirms the theory of an earlier recovery of the US economy after the coronavirus pandemic. A report by the US Department of Labor said that in the week ending February 20, the number of initial jobless claims fell to 730,000, down 111,000 from the previous week. Economists had expected the number of jobless claims to fall to only 838,000. A number of experts noted that the drop in the indicator could signal a turning point for the labor market. However, a more sustained decline is expected no earlier than mid-year, with gross domestic product in the fourth quarter of 2020 slightly higher than initially estimated, according to a report from the US Commerce Department. The report said that GDP grew by 4.1% compared with preliminary data of 4.0%. The upward revision was in line with economists’ estimates. GDP growth reflects an upward revision of investment in fixed assets and investment in private stocks. But the growth in American spending was slightly less than previously reported. According to the data, spending rose 2.4% from 2.5%. Another report from the US Department of Commerce on the growth of new orders for durable goods in the US led to the strengthening of the US dollar. According to the data, orders for durable goods in January 2021 rose 3.4% after rising 1.2% in December. Economists had expected durable goods orders to rise 1.1%. It is predicted that activity will continue to be maintained at a high level. If we look in more detail at the indicator, the main growth was due to an increase in orders for transport equipment, which grew by 7.8%. But even if we remove the volatile categories, orders for durable goods in January rose by 1.4%. Another report from the National Association of Realtors was no longer so important for traders who set a course to strengthen the US dollar. According to the NAR, the pending home sales index fell 2.8% to 122.8 in January after rising 0.5% in December. Economists expected pending home sales to remain unchanged. As for the technical picture of the EURUSD pair, only support at 1.2140 keeps risky assets from falling further. Its breakdown will lead to a larger sale of the euro in the area of ​​the lows of 1.2090 and 1.2035. If the bulls try to regain control of the market, they may have problems already in the resistance area of ​​1.2190. A breakout of this level will open a direct road to the high of 1.2240. As for the technical picture of the GBPUSD pair, the pound will have problems with the breakdown of support at 1.3950. If we do not see any special activity on the part of buyers in this range, then, most likely, the pressure on the trading instrument will only increase. This will open a direct path to the lows of 1.3840 and 1.3735. It will be possible to speak of a recovery in the pair only after buyers regain control over the resistance at 1.4050, which will lead to a more active growth of GBPUSD already in the area of ​​the maximum of 1.4120. The American stock market reacted with a sharp fall to the latest news, as did the cryptocurrency market, which, after a short break, returned to their corrective lows. A breakout of 44900 by bitcoin will lead to another large sale in the 38,000 region. Material provided by InstaForex – Source – InstaForex

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