Forex
EURUSD : Supported by the fast pace of vaccinations and continued efforts toEurope’s economic reopening, the common currency was being traded higher in thisMonday, above 1.22. In addition, PMI data released on Friday,suggest that the EU, the UK and the US expanded at record rates in the month ofMay, after relaxations in the restriction measures imposed due to the pandemic.The highlights this week are:- Ifo index of business climate and import prices for Germany;- Personal consumption and PCE inflation figures for the USA.
DXY : Below 90 and remaining close to the 3-month low, the dollar extendedlosses after registering 0.3% drop last week. In addition, the rate of10-year yield was at 1.622%. Investors also monitor the fallin Cryptocurrencies after Chinese regulatory authorities demanded in thestricter laws regarding mining and trade last week.
Commodity
Gold : In a slight increase of just over 0.2%, gold was being traded close to4-month highs, around USD 1884 an ounce, extending your earnings byeighth consecutive session, amid the weakness of the dollar and a drop in treasury yields .In addition to the important role as a protective asset against inflation, investors have come toabandoning bitcoin in exchange for gold, which may further favor the trend ofhigh of the metal
Indexes
Wall Street : Starting the week on a strong high, the Dow Jones had 200 points moreearly and both the Nasdaq and the S&P 500 were up more than 1%, as investorsseem to accept that the Fed will not tighten monetary policy anytime soon, despitecontinued concerns about rising inflation. On the corporate side, thebalance sheets is coming to an end, although several retail companies including Gap,Nordstrom and Urban Outfitters are expected to release their reports during the week
Inflation : According to Bank of Global Fund Manager’s monthly surveyAmerica, published last Tuesday, “higher inflation is now the consensus”.And in addition, “inflation is now again the biggest risk for markets”, asinitially identified by 35% of the 194 survey respondents, who managetotal assets of USD 592 billion. Investors are concerned about inflation
However, if investors are very concerned about inflation, this suggests thatstock prices are probably already reflecting these risks and investors discounted, or priced, the risk of inflation in the markets, taking into accountaccount of what happened in the early stages of the pandemic:
On March 17, 2020, BofA’s Global Fund Manager Survey identified”Coronavirus” as your biggest risk and remained at the top of the list for 10 monthsfollowing, as the data consistently and persistently reflected an economy inemergency state. However, S&P 500 prices reached their bottom on 23March 2020.
All of this indicates that possibly the market has priced the coronavirus recession anddiscounted the worst financial impacts of the pandemic in mid-March, but thisrisk still remained the concern among investors for yet anotheryear.
The inflation threat is the most well-known risk in the markets today and, therefore,investors should consider the likelihood that the negative side of inflation hasbeen priced.
Whether or not inflation will be a major problem for the economy, it will be possible to knowonly afterwards. This also does not mean that, if inflation figures higher thanexpected to be presented, the stock market cannot look atbeyond that event. It wouldn’t be the first time that stocks would go up while thingsthey are not doing well.
EURUSD and USDCHF / EURCHF correlation: While the correlation between EURUSD andUSDCHF is described as 95% negative (meaning that if the first one goes up, thesecond should probably fall). However, when it comes to EUR and CHF, theytend to move in the same direction; follow the same trend. In the long run, themost currencies have a correlation above 50% with the dollar. This happens byfact that the dollar is the dominant currency present in 90% of all credit transactionsexchange. In addition, the US economy is the largest in the world which means that itsforce impacts many other nations.
However, the relationship between the CHF and the EUR is even stronger than that, because theSwitzerland is located directly in the middle of the euro zone, although it is not part of it.Both physical proximity and strong commercial ties tend to create amuch stronger correlation between the two currencies than that found in other pairs.For example: strong growth in the euro zone reflects strong growth in Switzerland- creating similar upward pressure on both currencies
Source: https://wintrademarkets.com/
