FX.co ★ Powell has calmed the markets. What's next?

US Fed Chairman, Jerome Powell, attempted to reassure investors through his speech at the Congressional Banking Committee. He hinted once again that the soft monetary policy will continue for quite some time. Moreover, he noted the surprisingly strong inflation growth in the wake of the adoption of Biden's proposed new support measures, as well as the already existing incentive programs.

Against this background, the situation on world markets has slightly stabilized. The US dollar remains under pressure in the currency market against commodity currencies, whose rally is driven by higher prices for crude oil, industrial metals and other commodity assets, which in turn, are rising on expectations for a speedy global economic recovery after the COVID-19 pandemic.

Meanwhile, the dynamics of the pound's rate is rising against the US dollar for two reasons – due to the weakening restrictions in the UK and due to the US dollar's general weakness, which has been observed since this week started amid the stabilization of the situation in the US government debt market, which resulted in a delay of growth in Treasury yields.

Overall, the market picture remains unchanged. The stock indexes are slightly adjusted downwards, while the US dollar slightly declined in the currency markets. Its ICE index manages to stay above the "rubicon" of 90 points.

The market is still focused on the Congress' upcoming approval of new measures to support the country's economy and its citizens in the total amount of $ 1.9 trillion. It was already mentioned a few times that investors expect a real possible amount of liquidity that will enter the markets. So far, the consensus forecast assumes its size of $ 1.5 trillion, but if the total amount of the program is significantly reduced, that is, to $ 1.2 trillion, then the market will receive a noticeably smaller amount of liquidity. This condition may lead to the continuation of profit-taking in company stocks, which will lead to a deeper correction in stock indices and the restoration of the strength of the dollar, although only temporarily.

Forecast of the day:

The EUR/USD pair remains in a narrow range of 1.2050-1.2180. If it fails to leave it and breaks through the level of 1.2135, a downward correction to 1.2050 can be expected.

The AUD/USD pair remains in a short-term upward trend, supported by an increase in demand for commodity assets, which are growing on expectations of a strong recovery in demand in the post-pandemic period. If the pair breaks through the 0.4940 level and consolidates above it, further growth will be likely to 0.8000, and then to 0.8100.