The investors turned their full attention again to the situation with the Chinese coronavirus, after attempts to increase demand for risky assets at the beginning of last week towards its end.
The absence of any global positive news that would help market participants to distract from the topic of coronavirus forced markets to turn to this topic again. The reason was the revision of the number of people infected with the virus in China according to the new methodology, which showed that there turned out to be much more of them. This led to the fact that in the United States began to doubt the accuracy of information coming from the "Middle Kingdom", which affected the dynamics of financial markets and caused the resumption of some demand for shelter currencies and gold.
As a result of the week, the dollar rose against the basket, consisting of major currencies. Moreover, this quite confident growth continues for the second week in a row. There are several reasons for this. We single out the main ones. The first is mostly positive news on the American economy, the second is the end of impeachment in America against D. Trump, and the last is the growth in demand for the dollar as an asset for refuge and the currency for which shares of American companies can be purchased, which has been manifested in recent years. rarely. Of course, it is also necessary here to take into account the apparent weakness of the single currency, which has significant weight in the basket, which has lost support over the past few months on the expectation that the ECB, represented by its new leader C. Lagarde.
In turn, the weakness of the single currency, as well as the strength of the dollar, is fully confirmed by the distribution of the net positions of futures contracts in both the euro and the dollar. According to the latest COT report (Commitments of Traders) on February 14, demand for dollars remains, and the number of long positions is much higher than short ones. Moreover, this state of affairs is also supported by small investors (Small Traders) which is typical, following large investors (Large Traders). With regard to the euro, the picture is the opposite. We believe that this situation may continue this week if data on industrial inflation in the US show its growth, as well as other indicators on the US economy coming out this week, and the published protocol of the last Fed meeting will demonstrate not only the regulator's desire to maintain the current monetary course, but the Council's positive assessment of the economy, which Jerome Powell gave earlier.
In general, we believe that the prevailing trends in the currency exchange markets in the coming week will continue.
Today is a holiday in the States, so we expect traditionally noticeably lower activity in the markets.
Forecast of the day:
EUR/USD is trading above the level of 1.0840. We are still holding a view on maintaining the bearish trend for the pair, so we leave our target levels of 1.0800 and 1.0735, to which the pair will rush after falling below the level of 1.0825.
Gold on the spot reached a local maximum of 1584.00 on the wave of the topic of coronavirus, but today, it can be adjusted to 1577.50 due to the holiday in the USA, although we expect its growth to resume to the level of 1592.70 this week, but only after breaking the level of 1584.00.