Fundamental analytics

USD dollar looks overbought and vulnerable to local correction

Yesterday an interesting situation occurred on the American equity market. Despite the continued growth in yields on US bonds, stock markets also moved to gain and added an average of 0.3%-0.7%. All major sectors of the US market showed growth. It is interesting that the main index of the market  S&P 500 was able to keep above the mark of 2,700 points, an important level of support during the last trading sessions. At the same time, the growth of the US equity market might be a kind anomalous, as the growth took place despite all the classical market laws, on the background of higher yields of US government bonds. Yesterday, the yield of 10-year bonds reached a record level of 3.1% and updated the 2011 high. The level of inflationary expectations continues to grow as well.

The oil market continues to gain. Yesterday Brent updated the recent highs and was able to reach the zone of $80. Today the market is trying to gain a foothold for this level. Statistics from the US Department of Energy came unexpectedly different from the API data, showing a decline in crude oil reserves of 1.4 million barrels. Oil production again increased - by 0.76% per week - to 10.7 million barrels per day. The IEA report indicated fears about a slowdown in oil demand in the second half of 2018. At the same time, positive data were announced on the reduction of oil reserves in the countries of the Middle East region below the average for five years. As a result, oil resumed growth and is testing a round mark of $80 per barrel.

In the FOREX currency market, the strengthening of USD dollar continues. On Wednesday, EUR / USD continued its decline and today set a new year low at 1.1780. The general negative background for the European currency remains on the market. In addition to economic fears, the Euro-zone added domestic political risks. This week, investors are following the formation of a new government in Italy, fearing that new Italy politicians will support the country's withdrawal from the euro area, which can have far-reaching consequences and threats for the whole of the European Union.

Until the end of this week in general, the market no longer expects important statistical data and therefore the situation may somewhat stabilize. We observed some easing of pressure from the dollar yesterday, and today this trend may persist, which will contribute to the development of sideway movement in the foreign exchange market. Markets can be influenced by technical factors, the end of the week is approaching, and many investors may begin partial fixing of short positions before weekends in EUR / USD and gold markets. Germany and several other EU countries will be off on Monday. Although globally the market is dominated by negative sentiment and any strong pullback in the dollar can be used by sellers as a good opportunity to re-sell at more favorable prices.