FINAM FOREX: Fed rhetoric disappoints investors


28 January 2021

Anna Zaitseva, analyst, FINAM Group

On Thursday, January 28, EUR / USD was down 0.13% to trade at 1.20944, while the DXY dollar index was up 0.10% to hit 90.720. The day before, the European currency weakened against the dollar by 0.44%, to the level of 1.21079, while during the day the rate fell to 1.20583, and the DXY index rose by 0.55%, to the level of 90.640.

Risk appetite has noticeably decreased on world markets, which supported the demand for the US dollar. Investors remain focused on the pandemic, which is preventing the global economy from returning to a sustainable recovery. So, yesterday in the UK, it was announced the introduction of an additional requirement for a 10-day quarantine for travelers from countries with an unfavorable situation with Covid-19, and in China, the authorities want to restrict the travel of citizens during the Chinese New Year. At the same time, the current rates of vaccination of the population do not yet eliminate the risk of the spread of the disease, and therefore short-term risks for the world economy still remain at a high level.

The key event of yesterday was the speech of the head of the Federal Reserve, Jerome Powell, following the results of the two-day meeting of the regulator. Thus, the Fed left the key rate unchanged at 0.25%, and also retained the volume of purchases of government bonds in the amount of $ 80 billion and mortgage bonds in the amount of $ 40 billion per month. During a press conference, Powell stressed that economic activity in the country will remain under pressure in the coming months due to the persistence of an unfavorable epidemiological situation. At the same time, further economic recovery will largely depend on the success of the vaccination program, as a number of sectors still cannot return to normal operations in conditions of increased risks to human health. In turn, this prevents employment from returning to pre-crisis levels and limits consumer demand and inflation. According to the Fed, the negative impact of the pandemic factor will persist at least in the first half of 2021. The head of the Federal Reserve reaffirmed his readiness to take all necessary actions to stimulate the economic recovery, which, however, did not generate enthusiasm among market participants.

With regard to macroeconomic statistics, February data on the GfK consumer confidence index was released in Germany yesterday. Thus, the indicator fell by 8.1 percentage points to -15.6 points, which was the lowest value in the last eight months and was worse than the consensus forecast of -7.9 points. In the US, data on orders for durable goods became known. In December, the indicator rose by 0.2% (MoM) against an increase of 1.2% (MoM)) a month earlier, while analysts had expected an increase of 0.9% (MoM).

Today there are data on economic sentiment and consumer confidence in the euro area, inflation in Germany, GDP, foreign trade in goods, initial claims for unemployment benefits and new home sales in the United States.

After a prolonged consolidation near the 1.2150 mark, the EUR / USD rate went down. Stochastic lines are in a favorable position for selling, which speaks in favor of a further downward movement for the instrument in the short term.

This information is not investment advice.

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