USD and the US stock market

Analisi dei mercati finanziari e delle materie prime

Market Watch review. 02.04.2021

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

  • Strengthening of the US dollar.
  • Financial incentives are a rescue for the USA.
  • Micro bitcoin futures.
  • Good Friday.

I will start today's review with a fairly stable growth of the American currency over the past two weeks. Moreover, the US dollar has been strengthening since the beginning of January this year in a pair with most currencies. It's no secret that a strong national currency can act as a restraining factor for inflation and, as a result, slow down economic growth. In addition, a strong dollar could put pressure on the stock market, slowing the further growth of major US stock indices.

At this point, the question may naturally arise – what is the key reason or driver for the strengthening of the US dollar? To a greater extent, this is the overall recovery of the US economy, against the background of weaker economic growth in the currency block and Britain. Accordingly, we have two factors that compensate for each other: a strong dollar can slow down the US economy, while its growth ensures the strengthening of the national currency.

However, there is a third force that can simultaneously strengthen the dollar, supporting the growth of the stock market and the US economy. We are talking about record amounts of financial incentives from the Federal Reserve and the US government. Therefore, one should still not exclude further strengthening of the dollar, which will be provided by the publication of strong macroeconomic reports from the United States.

Shifting to the cryptocurrency market, I'll note the intention of the Chicago Mercantile Exchange CME Group to launch micro bitcoin futures on May 3 with a nominal value of 0.1 BTC. Of course, this requires regulatory approval. Let me remind you that CME opened trading contracts for bitcoin back in December 2017, with a minimum volume of 5 bitcoins, after which the price of this cryptocurrency fell by more than 8 thousand or 40% in just a week. Therefore, it is important to keep this event in mind, although it is extremely difficult to determine the market reaction.

Let's move on to today. Most European countries will have a bank holiday in connection with the Good Friday celebration, so volatility may remain very low in the first half of the trading day. Nevertheless, at the moment of the report release on the unemployment and the number of created jobs in the USA there is a risk of significant growth of the US currency trading activity. A substantial improvement in the indicators, which is in line with the forecast, will contribute to the strengthening of the USD.

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


Analyst

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