Markets in North America were closed yesterday as a celebration of Labor Day in the United States and Canada. Against this background, investors' activity was traditionally low. Moreover, the dollar received limited support in the currency market amid investors' falling interest in risky assets, playing out primarily the fall in the US stock market at the end of last week and the unexpectedly strong growth in Treasury yields.
What should we expect today?
Before the opening of trading in Europe, there is a multi-directional dynamics of futures on major US stock indices, while European futures contracts are growing. There is also a slight decline in the benchmark yield of 10-year Treasuries, which is down from 1.13% to 0.715%.
At the same time, we expect the European session to open in a positive zone. Demand for risky assets - company stocks may reflect a low demand for the dollar at the same time. If our assumption is confirmed, the US currency exchange rate will be under pressure in the morning trading.
Eurozone GDP data will be released today, where the previous dynamics is expected to remain. Annually, the indicator dropped by 15%, and quarterly by 12.1%. If the data turns out to be even weaker, it will be negative for the single currency rate, as it may serve as a basis for expanding stimulus measures, which, in turn, will have a downward effect on the rate. On Thursday, a meeting of the European regulator will take place, which is likely to lead to a drop in investor interest in the euro, since they will be interested in precisely possible plans to expand the regulator's incentives due to the weakness of the region's economy.
Assessing the situation on the markets as a whole, it can be described as an expectation. Now, we have two key events: the developments under the influence of ECB's final decision, and then the Fed's next meeting on monetary policy, which will take place in a week. We believe that in anticipation of these two significant events, the activity on the currency markets will differ from the usual one.
Forecast of the day:
The EUR/USD pair is trading above the 1.1800 level, which coincides with the support line. It is actually located in the middle zone, where it can both turn upwards and/or noticeably downwards in the future. If the pair holds above 1.1800, a local growth to 1.1880 is possible, but a decline below this level will lead it to decline to the level of 1.1755. Here, we are more inclined towards the second scenario.
The NZD/USD pair is also consolidating near the level of 0.6685. The tensions between the US and China, as well as signals about a slowdown in business activity in China may put pressure on the pair. Thus, we believe that if it consolidates below the 0.6685 level, it will fall to 0.6650.