FX.co ★ US dollar has no opportunities yet to continue rising

The world stock markets are still under pressure from circumstances that are primarily related to America's economic situation, where macroeconomic indicators, primarily inflation data and the state of the labor market, indicate the probability of a weaker recovery in the national economy.

Such negative expectations are formed, or rather, strengthened by the incoming new data of economic statistics. It is worth noting that the April values of the number of construction permits released on Tuesday were significantly lower than the forecast of 1.77 million, reporting at 1.76 million. What is more important here is the downward revision of the March figures from 1.766 million to 1.755 million.

It can be recalled that the situation in the construction sector of the US economy plays an important role, being one of its pivotal foundations. Therefore, its weakness indicates problems that reflect general trends in the economy.

First, the optimistic US stock market, and then the European one, received support on Tuesday. There is no doubt that investors believed that the data from the construction market would still be positive, but hopes did not last long. After the publication of the data, the main stock indexes reversed and declined. In view of this, the US dollar was also under pressure, although it consolidated before the publication. Its decline intensified during the Asian trading session on Wednesday. Earlier, the ICE dollar index was below the key level of 90.00, particularly at 89.70.

An important negative point for the US currency exchange rate is the lack of interest in the dollar as a safe haven currency. It usually received support previously in the wake of the decline in the US stock indexes, but now, this is not noted due to significant weakening factors – massive stimulus measures and ultra-soft monetary policy, as well as the stabilization of government bond yields, which pushed the dollar up at the beginning of the year.

Assessing the impact of various factors, we continue to expect the US currency to gradually weaken in the short term. As for the behavior of the stock market and the movement of prices for commodity assets, a lot will depend on the incoming American economic statistics. If they continue to show weakness, it will contribute to the continuation of the downward correction in stock markets and prevent the price of crude oil and a number of important industrial metals from rising. At the same time, gold's price will be supported by the weakening of the US dollar.

Forecast of the day:

The EUR/USD pair remains in a short-term upward trend. It could make a correction to the support line of 1.2205 before it further rises towards the level of 1.2280.

The USD/CAD pair is slightly increasing on the wave of a weak correction in crude oil prices. However, the US dollar's general weakness and oil's possible recovery will put pressure on the pair again after its local recovery. We believe it is possible to sell the pair on a likely growth from the level of 1.2135, with a local target of 1.1940.