The topic of coronavirus is at the top of the news again and has a significant impact on investor sentiment, but not enough to bring down financial markets
One thing is already clear. The Chinese managed to stop the coronavirus at its origin and, despite the fact that the number of victims is increasing, there is no need to talk about a pandemic. Last week, the situation in the market changed. The destructive moods subsided, although tension was still present.
In the currency market, the US dollar ended the week in positive territory against a basket of major currencies. The ICE dollar index closed weekly growth, reaching a local November maximum of 98.52 points. First of all, the dollar received support in the wake of generally positive data on the US economy, as well as from the labor market. And, of course, the termination of the topic of impeachment of D. Trump played a positive role here.
Of course, a significant role in the growth of the dollar index was played by the depreciation of the single currency, which occupies a significant weight in the basket, but the weakening of other currencies also caused an increase in the index.
Therefore, in our opinion, the single currency, as well as sterling will remain under pressure. The main reason remains the expectation of continued inhibition of growth of the economies of the euro area and the UK. This will happen, on the one hand, due to the unclear prospects of a real economic divorce as a result of Britain's withdrawal from the EU, and on the other, due to obvious economic pressure from the United States who want to force Europe to fulfill all of Washington's economic and political desires.
Now, all attention will be focused on business and industrial activity in China, where all the plants and factories from today have begun to work fully. If it turns out that China will be able to compensate its losses in a relatively short period of time due to the shutdown of enterprises after the new year, then this will become an undoubted positive incentive for the growth in demand for commodity assets, as well as for stocks of companies. In this case, we can expect continued weakening of demand for gold, asylum currencies and government bonds of economically strong countries.
Forecast of the day:
EUR/USD is trading above the level of 1.0940. We consider it possible to resume sales of the pair after it crosses the level of 1.0940 with a local target of 1.0900.
GBP/USD is trading below the level of 1.2920. The pair will reverse and resume decline to 1.2835, if the price does not rise above it.