FX.co ★ Stocks may bounce back, while dollar will decline (expect the local growth in EUR/USD and EUR/JPY to continue)

The US stock market continues to rally this week, putting pressure on the dollar, especially against other world currencies. It seems that investors are convinced that equities have already hit bottom, so they started purchasing in the hopes that there will be growth in the near future. This is despite the latest CPI report in the Euro area, which indicated a year-on-year growth from 8.1% to 8.6%, as well as widespread fears that the world economy will fall into recession. Yesterday's strong recovery of the DOW index by almost 755 points also indicates that the market is reassessing the overall situation in the face of good data during the reporting season.

As mentioned earlier, the dollar turned down as soon as demand for stocks increased in the market. This is not surprising because the forex market has a tight connection with the stock market and government debt. But all this do not assure that stocks will continue to rally in the future, while the dollar will fall down. It is still early to make predictions because the Fed and other central banks could raise rates even more, and inflationary pressures in Europe, the US and other economically developed countries could continue to grow. After all, too-high inflation and too-high rates will lead to stagflation, which is bad for economies.

Forecasts for today:

EUR/USD

The pair is currently trading below 1.0250. If the rally continues, the price will reach 1.0365.

EUR/JPY

The pair has come close to the resistance level of 141.70. If the rally continues, it will go to 142.75.

The ECB's decision to raise interest rates could play a major role in the pair, especially since the Bank of Japan has so far refrained from such a decision, which is clearly not in favor of yen.