The fog clears over financial markets


The news that the Trump administration had officially begun the transition of power to the winner of the US election, Joe Biden, contributed to the growth of demand in the stock markets. Coupled with the recent news about vaccines, it dissolves another fog of uncertainty that prevented investors from being active.

Until recently, there were two major negative factors on the market – the coronavirus pandemic and the results of the presidential elections in the US. The first issue is already starting to become apparent, thanks to the appearance of effective vaccines. The second issue hovered in the air and fettered many investors with the likelihood of a collapse of power. But yesterday’s news dispelled those concerns, prompting increased demand for company shares and higher prices for crude oil and other commodities.

An important signal is a sharp drop in the gold price, which has been perceived as a safe-haven since the start of the pandemic and began to drop as the pandemic’s future pressure started to ebb.

But the foreign exchange market seems to still be in confusion, nervously twitching up and down. This behavior is due to the presence of a large number of mutually exclusive factors. For example, the US dollar’s weakness is fully compensated by the same weakness of the euro, which is under the weight of the euro zone’s problems, such as the rejection of the EU budget and the lack of new incentives.

In my opinion, a strong signal was provided by the sharp local growth of the dollar on Monday. The increase was inspired by the publication of promising production data, which probably, led some investors to believe the need for stimulus measures may disappear because the vaccine is already available and the economy gradually began to recover. In this case, the dollar is unlikely to weaken noticeably. Its dynamics against major currencies will be situational and largely depend on the incoming economic data and the general attitude to risk on the part of investors.

What to expect soon:

I believe that clarification with the winner of the presidential election in the US and the early start of massive vaccination of the population of Europe and North America will have a beneficial effect on economic activity recovery. As a result, the demand for shares of companies and risky assets will grow. I can say that the fog began to clear over the markets.

By Maksim FXbro