FX.co ★ Continuous volatile trading should be expected before the Fed's March meeting

Global stock markets continued to rumble on Monday. The US trading session was characterized by high volatility as Meta (Facebook) shares continued to decline, which caused a general wave of concerns about the ability of the local stock market to resume growth.

As for the dynamics of the US stock market, the expectation of the publication of new consumer inflation data this Thursday plays an important regulatory function. According to the forecast, the consumer price index in January should correct in monthly terms to 0.5% from 0.6% in December, but annual inflation should rise from 7.0% to 7.3%.

It is clear that this event will be important for investors. The yields of US government bonds gradually rose again after a short consolidation period, indicating that debt market traders are waiting for the release of inflation data, which is expected to make another growth. This morning, the yield of the 10-year Treasury benchmark reached the level of December 2019 and shows an increase of 1.70%, reporting to 1.949%.

It is also obvious that the stock market will not be able to ignore the dynamics of the debt market, which means that if yields increase the increase, this may become the basis for the resumption of bearish sentiment in the stock market in the US, and then around the world.

Yesterday, ECB President C. Lagarde tried to mitigate the negative effect of her speech last Thursday after the bank's monetary policy meeting. She made it clear to the press that the bank does not see full-fledged reasons for raising the cost of borrowing. On this wave, European trading floors have grown, albeit not so noticeably. Today, there was an increase in futures for major stock indices before the opening of the European trading session.

An important signal that indicates the growth of concern in the markets is the resumption of an increase in the value of gold as a protective asset. Probably, its increase is due to some disorientation of investors before the release of inflation figures in America.

At the same time, the continuation of growth in the US dollar after a strong decline in the ICE index last week is seen in the currency market. The indicator as a whole remains flat, being slightly below the level of 96.00 points.

Observing everything that is happening in the markets, we believe that volatile trading is likely to continue until the end of this month and even in March until the Fed's monetary policy meeting, when the first increase in interest rates in recent years is expected to take place.

Forecast of the day:

The EUR/USD pair fell below the level of 1.1415, which will most likely lead to its local decline to 1.1345. The reason for the pair's downward reversal is Lagarde's statement yesterday that one should not expect an increase in the ECB interest rates in the near future.

The USD/JPY is trading below the level of 115.65. Its growth is supported by the rising yield of US Treasuries in anticipation of US inflation data, which should increase again in annual terms. The breakdown of the level of 115.65 may lead to the pair's limited growth to 116.35.