The past week has fully confirmed my forecast that after the inauguration of Joe Biden, a period of consolidation will begin. An important role will play the expected discussion in Congress on the volume of $1.9 trillion of stimulus measures.
Why do I continue to draw attention to the topic of new support measures and considering it very important? Earlier investors bought risky assets, proceeding from the fact that financial markets will just rain in dollar liquidity, which in conditions of practically zero interest rates makes it very profitable to buy first of all shares of companies. This dynamic is especially obvious in the American stock market, or rather in securities included in the high-tech NASDAQ 100 index, which continues to grow steadily upward, rewriting one historical maximum after another.
In the foreign exchange market, despite all the expectations of new stimulus measures, low interest rates and the Fed’s promises not to change them for a long period of time, an interesting picture is observed. The ICE dollar index is above 90 points after testing the 91.00 point level last week. This behavior of the indicator can be explained by the weakness of the Euro, which in the basket of major currencies has a significant weight in relation to the US dollar compared to other currencies. The consolidation of the euro and other currencies against the dollar can also be explained by the onset of the equilibrium factor, when neither the dollar nor other major currencies, came to equilibrium against the background of monetary policies of regulators and expectations of news on the debate in Congress on the issue an unprecedented amount of aid offered by the Democrats.
Thoughts and conclusions:
Observing this picture, I believe that before the Fed meeting this week, the currency market will most likely consolidate with a slight bias towards the weakening of the dollar. This will happen due to the strong investor confidence in widespread Democratic stimulus and the Fed’s tough stance on super-soft monetary policy. As for today’s probable dynamics on the markets, I believe that the positive attitude of market players will continue and the dollar will weaken on this wave