On Tuesday, the stock indices showed a strong negative trend and closed in negative territory. The Dow Jones fell by 0.46% (21310.66), the S&P 500 index lost 0.81% (2419.38), the Nasdaq fell 1.61% (6146.62). European markets also closed the day in red, after trading in a single dynamics. Germany's index DAX fell 0.78% (12671.02), British FTSE 100 lost 0.17% (7434.36).
Today it is expected a few publications of the macroeconomic data and the speeches of the monetary authorities that could affect investors' decisions during the trading sessions.
At 00:30 MSK FOMC member the Kashkari speaks
At 09:00 MSK the Index of housing prices Nationwide in the UK in June
At 10:30 MSK FOMC member Williams speaks
At 15:30 MSK Balance of foreign trade in the United States in May
At 16:30 MSK the President of the Bank of England's Carney speaks
At 16:30 MSK the President of the Bank of Canada's Poloz speaks
At 16:30 MSK the President of the Bank of Japan Governor Haruhiko Kuroda
At 16:30 MSK the ECB President Draghi speaks
At 17:00 MSK pending home sales real estate market report for may
At 17:30 MSK crude oil inventories
At 17:30 MSK the data on excess reserves of oil in Cushing
Yesterday, the main driver of increased volatility in world markets was the speech of the ECB President. At the conference in Portugal, Mario Draghi opened possible plans of the European regulator, saying about the improving economic situation in the region and, as a consequence of this, about the possible reduction of stimulation. But, despite this, the transition from adaptive to neutral position should be gradual. A recovery in inflation may also depend on external factors and global environment.
The speech of the ECB head was in fact a turning point, as this is the first such statement within a long time, which says about the change course of the regulator. Market participants might also perceive such actions as a response to the request of Germany about the reduction of monthly injections of cash into the economy. The Euro showed a sharp increase relative to other reserve currencies, reaching multi-month highs. EURUSD quickly overcame the level of 1.13. And it continues to grow at the morning and in the Asian session. The nearest resistance is at 1.14, where a pair may be in the near future. The main target for EURUSD is at the level of 1.16, the achievement of which depends on future actions of the regulator, and will not be reached soon. Yesterday growth was mainly due to the closing of short positions, the opening in the opposite direction will significantly reduce the speed of market.
The speech of fed chair Janet Yellen also helped to the strengthening of the Euro against the dollar. She kept talking about the smoothness of a rate hike and this was corresponded to expectations of market participants. Most likely, the rate will be raised this year again, but the strong hawkish statements had not followed. Sales on the stock market also contributed to the IMF statement about the increased risk in recent years against the background of political uncertainty. According to the forecasts of the IMF, U.S. GDP growth even at 1% is now unlikely, despite the stimulus, which plans to arrange Donald Trump. Today it is possible continuation of the period of high volatility; it will be happen due to new speeches of heads of regulators of the leading economies in the world.
Oil, meanwhile, continues correctional growth, which was driven by the weakening of the U.S. currency. Even growth of inventories according to API against expected decline last night did not affect the increase of prices during the Asian session. Further growth is still restrained by the excess offer. Today the official data on oil reserves in the United States will be published.
Sincerely, Global FX chief analyst Sergey Melnikov.