Positive market sentiment in the US – Market Overview

Positive market sentiment in the US – Market Overview

Despite the worrying evolution of the pandemic in the United States, the economic figures continue in a clear trend of improvement.

The data published on Friday of the manufacturing PMI for January beat all expectations 59.1 vs 56.5, and well above the December data. This useful data, together with the anticipation of approval of the fiscal stimulus package that President Biden will present shortly to the North American Congress, encourage optimism among investors and give support to the stock markets, which, for the moment, are experiencing slight gains pending confirmation of fiscal policy measures to resume its upward path.

Europe

Quite the opposite is happening in Europe. Friday's PMI data in Europe was not as positive with a Market Composite PMI lower than expected 47.5 vs 47.6. That has been reflected today with the German IFO publication.

For January, IFO Business Climate has fallen to 90.1 from 92.2 the previous month and below the expected 91.8.

In the report presented by this German institute, although the industry continues to be well-positioned and export expectations have grown modestly, the retail sector has collapsed. Many service providers have been seriously affected by the measures of lockdown, including transport and logistics. The IFO institute expects a stagnation in GDP in the first quarter, so the double-dip recession scenario is the most likely under these circumstances.

Therefore, these are not the best news for the European economy, which faces an uncertain future due to the worsening of the pandemic crisis and, above all, the intensification of confinement and mobility restriction measures that will be applied by almost all European countries during the next months.

Federal Reserve Meeting & possible effects

Waiting for another relevant event that will take place this week such as the Federal Reserve meeting and that could affect the price of the Dollar.

However, market expectations do not anticipate any variation in the monetary policy measures of the Fed, the EUR/USD pair has lost part of the territory gained at the end of last week and falls from the 1.2180 levels to the 1.2144 area where the 100-hour SMA line passes and which acts as intermediate support and as a level pivot.

Still far from the primary support located at 1.2065, the euro pushed down by worse-than-expected data from the European economy and an evident decline in growth expectations.

The downward pressure on the euro could intensify if the EUR/GBP pair decisively breaks the support located at 0.8866, a level that has served as the primary support of the pair since last May and whose break down would open the way to the zone price concentration around 0.8700.

This will depend mainly on the economic data from the United Kingdom, which, although with strict containment measures, showed a better financial performance than the European Union.

Sources: WSJ, FT.

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