Weakening of the USD

Finans ve emtia piyasaları analizleri

Market Watch review. 21.04.2021

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

  • Unemployment in Britain.
  • Weakening of the USD.
  • Rising oil prices.

Let's start with the publication of an unexpectedly good report on the labor market in Britain. In March the number of applications for unemployment benefits fell to 10 thousand, decreasing more than 8 times compared to the previous month. At the same time the unemployment rate reached 4.9% in February, the lowest since October 2020. Accordingly, we may see a higher rate of decline in unemployment in the next report, which is already supporting the pound sterling.

Such progress was achieved due to rather high rates of vaccination, as well as a number of other activities aimed to support business and population in Britain. As a consequence, we saw a strong growth of the currency pair GBP/USD and a test of the key resistance level at 1.4000. Moreover, further growth of this currency pair to 1.4090 and further to 1.4180 is a condition of the main scenario.

And now let's move on to the US dollar, which has been actively losing positions in a pair with most currencies since March 31. One of the most obvious reasons for the sell-off of the US currency, despite the general recovery of the US economy, remains the policy of the Federal Reserve and the government. We are talking about coordinated actions in the name of saving the economy, in the form of keeping rates at record lows, as well as a large volume of asset repurchases on the balance sheet of the regulator and providing financial assistance in the fight against the consequences of COVID-19.

All these actions can have extremely negative consequences in the longer term. But now they provide incredibly strong support to the stock market and, as a result, contribute to the overall weakening of the US dollar in a pair with most currencies. Thus, the EUR/USD currency pair came close to the maximum since the beginning of March, while the AUD/USD and NZD/USD currency pairs reached the key technical resistance levels of 0.7815 and 0.7230, accordingly.

I will finish today's review with the oil market. Since the beginning of this week, the activity of buyers remains moderate and yet they managed to renew the highs from the middle of March. The bullish trend is due to the optimism of the key market participants regarding the prospects of growth in physical demand for oil. Thus, the International Energy Agency, the US Energy Information Administration and the OPEC raised their forecasts for the oil demand in 2021, thereby supporting the oil quotations.

Closely monitor the news background and be prepared for all the surprises of the market.