FX.co ★ Stock rally may extend this week

After it became apparent that the Fed will not raise interest rates further despite threats, market players shifted their attention towards the overall economic picture in the global economy.

Most likely, the slowdown, especially in China and the US, will put pressure on the upward trends in equity and commodity markets, while dollar will continue to decline smoothly for some time due to the end of the Fed rate hike cycle. However, once other central banks stop raising interest rates, a significant consolidation period will occur in the forex market, as balance will be established between the Fed's interest rate levels and those of other central banks.

For this week, upcoming consumer inflation data in the UK and the eurozone will affect market direction. Forecasts say CPI in the UK will slow down from 8.7% to 8.2% y/y, while in the eurozone, it will decrease from 6.1% to 5.5%. If the data comes in not higher than expected, or even slightly lower, there may be significant reduction in expectations that the Bank of England and the ECB will make radical decisions and raise interest rates at their July meetings. This could result in the pause of rate hikes, similar to the steps of the Fed.

On this wave, the rally in both euro and pound may come to an end, with the two entering a consolidation period.

Regarding today's market dynamics, a lot will depend on the position of US investors, as currently, futures on major stock indices trade slightly lower. Therefore, any upward movement will trigger another rally in equity markets, a surge in demand for commodity assets, and a weakening of dollar.

Forecasts for today:

AUD/USD

The pair, after consolidating above 0.6800 amid positive market sentiment, may reverse and retest 0.6900.

USD/JPY

The pair retraced upwards and traded at 139.00 after falling to 137.55. If positive market sentiment persists, quotes will decline further to 137.55.