When will sideways dynamics in financial markets end?

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It seems that investors switched their attention from the impact of coronavirus infection and the events around the US presidential election and started to notice the incoming economic data, which turned out to be not so optimistic.

On the eve of the US presidential election, investors were actively rebuilding their investment portfolios, smoothly getting rid of companies’ shares in high demand, primarily in the industrial sector. That caused strong growth, for example, of the DOW index. This process intensified after Pfizer and BioNTech news on the vaccine efficacy. The dollar and other safe-haven currencies – the yen and the franc, came under pressure on this wave.

By today, passions have subsided a little and the market turned its eyes to the data on retail sales and their volume in the United States, published on Tuesday. The numbers turned out to be worse than expected. In October, the core retail sales index fell to 0.2% from the revised downward September value of 1.2%, while the expected value was 0.6%. Also, the numbers of the export and import price indices came out worse. Import values in monthly terms generally went negative. The retail sales volume also fell to 0.3% from the revised downward September value of 1.6%. The indicator was supposed to show an increase of 0.5%.

A little positive came from industrial production data, which added to 1.1% last month against a 0.4% decline in September and expectations of 1.0% growth. But this was not enough. The stock market reacted to this news with a fall. Still, the dollar remained practically unchanged against major currencies except for the euro, which is growing on the ECB’s promises to use all measures to support the region’s economy. Besides, the main currency pair, Eurodollar, traditionally received support on the stock markets’ continuing optimism.

What to expect soon:

Observing everything that happens, I notice that the market sentiment has not changed significantly yet. There are still many factors that generate uncertainty. One is, of course, the outcome of the presidential election in the US. The second is the lack of an exact date for the start of mass production of COVID-19 vaccines. These factors will most likely lead to the continuation of the high-volatility and the sideways dynamic on currency markets.


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