FX.co ★ It is currently unreasonable for the market situation to change drastically

Last week turned out to be very hard for the global markets and this situation may strongly continue this week.

As previously expected, markets will be concerned about the continuation of growth in the yield of US Treasuries amid the adoption of America's new support measures in the amount of $ 1.9 trillion. Initially, investors reacted positively to J. Biden's new incentives, which is reflected in the growth of stock indices. The continuation of growth in Treasury yields did not even put pressure on them for a while. However, the markets could not ignore this situation, as the dynamics of the government bond market yield sets the tone for all markets, which began to occur by the middle of the week.

Against this background, stock indices began to consolidate, moving around between a huge volume of dollar liquidity and an active increase in interest rates on the debt market, which negated all optimism. As the Treasury yields sharply rose last Friday, the yield on the benchmark 10-year government securities soared to their highest level for this year. It successfully put pressure on the stock markets, forcing the indexes to decline.

Meanwhile, the situation on the currency market was very confusing. Currency pairs that include the US dollar are beginning to show high intraday volatility, generally moving sideways. This uncertainty is also clearly manifested in the gold's dynamics, which is traded in dollars and has fully become a victim to the uncertainty factor. This morning, gold sharply declined, but recovered its loss. The crude oil market also showed a similar pattern.

Apparently, last week's behavior of the market is still not over. It is very possible that the dynamics will resume for this week. However, it is still hard to say whether the yields of US Treasuries have reached their local high or their growth has ended. Technically, it still has a chance to rise, but fundamentally, a lot will depend on how rapid inflation will rise, since this is the main stimulating factor for growth for US Treasury government bonds. The continuation of its increase will stimulate a sell-off in the bond market with a simultaneous increase in their yields.

Analyzing the current situation, we believe that inflation has a potential to grow. It is supported by the high demand of the American population amid the government's actual distribution of financial aid. When this stops, inflation will continue to rise, while treasury yields, which will press down stock indices and support the US dollar, will continue to consolidate against major currencies and other assets it trades on.

Forecast of the day:

The EUR/USD pair is likely to consolidate in a narrow range of 1.1870-1.1990, if it fails to break through the lower level. If this level holds, the pair is likely to recover to the level of 1.1990.

Gold's price is likely to consolidate in a sideways range of 1720.00-1755.55. It is likely to buy it on a decline from the level of 1720.00, with a local target of 1755.00.