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Fed Chairman puts pressure on USD

Аналитика финансовых и товарных рынков

Market Watch review. 30.04.2021

In today's release, we’ll cover the following topics:

  • US Federal Reserve decision on the main interest rate.
  • Rising oil prices.
  • Collapse of the USD/CAD currency pair.

One of the key events of the current week could be the decision of the US Federal Reserve on the main interest rate, as well as the volume of bond repurchases. Experts noted the high probability of hints on the readiness of the US regulator to reduce the volume of the quantitative easing program. Against this background, we observed a moderate strengthening of the US dollar. However, the head of the Federal Reserve, Jerome Powell, did not confirm these expectations, saying that the increase in the rate of inflation growth remains a temporary phenomenon.

Please note that during the Fed's press conference and, accordingly, during Jerome Powell's statement that it is too early to reduce the volume of bond buybacks, the US dollar weakened noticeably. Thus, the EUR/USD currency pair strengthened by almost 100 points, thereby fully compensating for previously lost positions. The comments of the head of the Federal Reserve also provided support to the stock market, and by the opening of trading on Thursday, the S&P 500 index continued to grow, breaking the psychological mark of 4200, which became a new historical high.

And now we turn to the oil market. At the moment, we are seeing an increase in the price of black gold, which may be of a short-term nature, and there are several reasons for this. First of all, I will note a very weak, but still an increase in oil reserves in the United States. In any case, this is a bearish fundamental factor, since a steady decline in oil reserves is necessary for prices to rise. Secondly, the United States is ready for a dialogue with Iran, which owns 13% of the world's oil reserves. The appearance of a real probability of the return of Iranian oil to the world market may collapse oil quotes. But at the moment, traders completely ignore this fact.

Shifting to the foreign exchange market, it is impossible not to note the update of multi-year lows by the USD/CAD currency pair. Here, as they say, all the stars aligned – the US dollar significantly weakened in a pair with most currencies, while the Canadian dollar received quite strong support in the form of rising oil prices. Accordingly, the weakening of the US dollar and the strengthening of the Canadian dollar brought the quotes to a minimum since January 2018. But active sales in the market are no longer reasonable, because there is a risk of developing a corrective growth.

Concluding the review, I will pay attention to gold, which by the middle of the trading day on Thursday fully compensated for all the growth. But only a return of the price under the strong technical support level of $1760 per ounce can indicate the willingness of sellers to develop a more powerful wave of decline. At the same time, a breakout and fixation of quotes above $1800 per ounce will give buyers confidence in the ability of the precious metal to grow in the area of $1860-1870 per ounce.

That’s all for me. Closely monitor the news background and be prepared for all the surprises of the market.


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