Following the chaotic events during the start of the month, investors' activity began to slowly decline in the middle of the month, which is demonstrated in the consolidation of stock indices and uncertain dynamics in the currency markets.
Currency markets are in between the state of uncertainty and expectation again. However, the uncertainty factor is still unchanged. Investors already understand that the dynamics of COVID-19 remains uncontrollable, despite the start of the production of vaccines against it and the actual vaccination process and hence, the lockdowns in Europe, and records for cases and deaths in America. The impact of this factor remains significant, as it greatly influences the economies of Western countries and the entire world.
In turn, the expectation factor still remains generally positive. Investors hope that the first and second quarter this year will be much better than the disastrous 4th quarter last year. In addition, the market's focus remains the topic of the additional incentive measures from the J. Biden's administration after his inauguration. However, if you carefully observe the overall outlook of the impact of support measures, they have practically lost all their effectiveness and only contribute to inflating financial bubbles that will surely burst. At the same time, their attention is also focused on the beginning of corporate reporting of companies, which will affect the demand for company shares, and through this, the overall view on the markets, including the currency market.
Analyzing all the events, we believe that the general consolidation period in the markets will most likely continue this week.
In terms of today's economic calendar, the focus will be on the publication of the values of US consumer inflation. Its growth in consumer inflation both in monthly and annual terms, respectively by 0.4% against 0.2% and 1.3% against 1.2%, may provide local support to the dollar, which might negatively affect the dynamics of stock indices.
Forecast of the day:
The EUR/USD pair may decline if US inflation data shows growth. In this case, it may quickly move to the recent low of 1.2140 without breaking the level of 1.2220.
The USD/CAD pair may rise to the level of 1.2800, after breaking through the 1.2720 in the wake of the US dollar's growth due to rising inflationary pressures.