Economic figures continue to show improvements across the world.
Caixin Services PMI rose to a robust 55, above the growth level of 50, reflecting an evident recovery in the Chinese economy. In Europe, Markit Composite PMI for May reached 32.3 (improving the forecasts), a level much higher than the 13.2 of the previous months.
With this, the stock markets continue to rise with a clear overperformance of the European indices. Italy40 is approaching its intermediate target between 19700 and 19738, levels of 50% Fibonacci retracement of the whole bearish leg, and 100-day SMA.
USA500 has already surpassed major Fibonacci retracements and continues strong bullish momentum towards an intermediate target located at 3138, 0.786 Fibonacci retracements.
Once over the 0.618 retracements, the current movement can be considered as a new uptrend, and it is no longer a correction of the previous bearish movement.
The market will be very attentive to the ECB meeting on Thursday and later the one that the Federal Reserve will hold on next Wednesday. More than the economic figures showing recovery of the economy, the main market-movers will be the decisions that these central banks adopt in their meetings.
The ECB is expected to increase its asset purchase program; forecasts are between an additional 500 bln and 1 trillion Euros. It will also be essential to know the time extent of these measures if they so establish.
The higher the volume of the stimulus, the more favorable it will be for the stock markets, especially for peripheral countries, Italy and Spain, since a large part of the bonds that the ECB will buy are those of these countries.
Usually, an injection of liquidity of this magnitude has depreciating effects on the currency, in this case, the Euro. But this time, the market is evaluating it positively because the objective of these measures is not only to stimulate the economy but also to maintain cohesion within the Monetary Union.
The Euro had suffered previous losses due to the uncertainty of countries such as Italy, which saw its fiscal situation worsen substantially and jeopardized the standard European policy, therefore. However, in the beginning, some downward pressure could be seen in the Euro after the announcement of the measure. This will only be momentary, and the single currency will continue its upward path, as many analysts expect.
EUR/USD has support points in the 1.1150-60 and 1.1100 zone. The upside target is 1.1240, a level that has been approached today, and above, it finds no resistance until the levels of 1.14.
These monetary policy measures also have their effects on GOLD. The precious metal has suffered today a sharp downward correction down to $1700 due to technical reasons, but mainly due to a rebound in Treasury yields.
Ten-year treasury surpassed the 0.70 level after a better than expected figure of ADP Nonfarm employment and accelerated the fall of GOLD.
Meanwhile, the market expects the Federal Reserve to add more liquidity to the market at its next meeting, so yields are expected to fall and may again reach the lows of the 0.50% level.
This move would support the GOLD and lead it back up to the levels of $1744 and direct it towards the first goal at $1765.