Yesterday, investors anxiously waited for the speech of the Fed's head, J. Powell at the Wall Street Journal summit. The primary topic was about the prospects for the US labor market and its possible ability to relax the government debt market and through this, all the markets in the world. Unfortunately, that did not happen. He either did not set such a task, and provided empty promises, as his predecessors most often did, spreading fake optimism in those situations, or he considered that there was no need to mislead interested parties, primarily investors.

In fact, we can say that Powell's speech was neutral and his rhetoric is almost the same with the previous one, which is unusually optimistic. Against this background, the US stock indices began to sharply drop, dragging down the futures for European and Asian stock indexes. At the same time, the US dollar received significant support amid the sharp growth in the yield of US Treasury government bonds. Recently, the yield on the benchmark 10-year Treasuries surged by more than 5%, reaching a local high of 1.569%. Today, it further rose to the level of 1.573%, gaining 1.49%.

This is an important signal for market participants, which has a negative impact on the demand for stocks in the stock market and at the same time, supports the USD. The importance of these correlations were repeatedly explained previously. Today, the bond market is showing a decline in interest in government bonds by leaps and bounds, as investors understand that the huge amounts of liquidity that the Fed pumped up earlier, as well as the expected new stimulus measures of $ 1.9 trillion, will cause a sharp increase in inflation in view of the expected strong economic growth this year, which in any case, will force the regulator to revise its monetary policy.

Now, the question is how will the US dollar behave in the near future in relation to major currencies?

In our opinion, both inflation growth and the continued increase of Treasury yields will continue to contribute to the strengthening of its position. And although the national currency was strongly pressured from various stimulus measures that resulted in its decline, the influence of these specified factors will surely support its rate. The dollar's strengthening will cause the gold's value to decline, which will most likely return to the level of $ 1370.00 per ounce, which was set at the start of summer 2019.

Considering today's events, the main role will be the publication of US employment data. We believe that if they turn out to be worse than expected – for example, it was with the ADP figures this Wednesday, then the US stock indices may further move down, while supporting the USD.

Forecast of the day:

The EUR/USD pair is trading above the level of 1.1950. If it declines below it, the price will locally decline further towards 1.1865.

Gold is trading below the key level of 1700.00, and the US dollar's strength will continue to put pressure on it. We expect further decline to the 1669.00 mark.