Why have the markets stopped and what should we expect shortly?


An interesting situation is developing in the market. On the one hand, belief in Joe Biden’s victory in the presidential election, together with the news about the high effectiveness of the vaccine from Pfizer and BioNTech, should support positive sentiments and increase demand for risky assets, but this is not happening. However, investors believe that these factors will remain in place and the rally in stock markets will resume.

Why do we see consolidation in stock markets and uncertain dynamics in foreign exchange markets?

The United States is facing a constitutional crisis since Donald Trump does not want to give up his presidential seat to Joe Biden, believing that the voting process was not transparent and had many violations. Moreover, the counting of votes is still going. Regarding the vaccine from Pfizer and BioNTech, we saw the first positive reaction of the markets, but now investors want to see its production. The market has previously reacted vigorously to vaccine news on several occasions, but they all failed. Given these two critical factors, we can understand why the rally in the stock markets slowed down.

All the above reasons also influence the foreign exchange market and currency pairs dynamics. Lack of certainty on the question of the winner in the presidential race, new records of COVID-19 cases in America and Europe and the continuing risks of new lockdowns of entire countries scare the markets supporting the demand for protective assets: government bonds of economically strong countries, the Japanese yen, the Swiss franc and, of course, the US dollar.

Another essential reason that does not allow the US dollar to resume the decline, as was expected earlier, is the stalled process of adopting new stimulus, promised earlier. Before the election, the opposing sides talked a lot about the stimulus, trying to get voters’ support. It’s more than a week after the election, but the stimulus is still not adopted, even though investors largely hoped for them. This topic exerted pressure on the American currency rate for some time.

What to expect soon

Observing everything that happens, I think that most likely, this situation will continue today. The next week’s events are difficult to predict since any news about Biden’s real victory or the start of vaccine production will turn the markets up and the dollar down.

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By Maksim FXbro