There is a strange steady calm on both the foreign exchange market and the stock market. The euro/dollar rally seems to have stopped and Wall Street is so calm that even the Italian stock market has better results.
Let’s see in detail what is happening in these markets in August, always month stalemate for currencies and stocks.
Forex Market Analysis
The euro dollar exchange has returned to gain ground after Non Farm Payrolls on Friday, August the 4th. The US job market report broke off the profits gained by EUR / USD and allowed the US dollar to appreciate again against the European currency.
This has opened a bet on the upward trend of the cross for the coming weeks.
For some analysts, the euro will return to show its strength and the dollar gains will be canceled unless US inflation will rise markedly. Only in this case, experts say, the bullish trend of the euro dollar exchange rate will be questioned.
If, however, we refer to the spread on German and US yields, we immediately come to the conclusion that the rise in the euro dollar exchange rate is over.
EUR/USD travels in a range between 1,0750 and 1,1689 (support offered by the trend line rising from the minimum of June the 23rd).
Despite the EUR / USD recovery is encouraging for the bulls of eurozone, the spread on the German Bund for 10 years seems to show another scenario.
It means that spread will likely increase further in favor of USD in the next few days, narrowing the bullish potential of EUR / USD.
We just have to keep track of the levels of support and strength to see which of the two scenarios will have the best.
Another currency to keep an eye on is the yen. The yen travels at 110 against the dollar, after reaching the maximum of 110,82.
The Japanese currency, considered a safe heaven asset is recovering despite tensions coming from North Korea.
It is unclear why the yen it is considered safe as both North Korea and Japan are very close and Japan is a likely target of Kim Il Jung. The South Korea, instead, the first enemy of North Korea, has seen its currency, the won, greatly depreciated.
Stock Market Analysis
Speaking of stock markets, Wall Street is extremely calm and the S&P 500 does not drop by 5% or more from June 26, 2016.
Only Dow Jones had a big change, climbing more than 3.600 points since President Trump’s election and last week reached 22.000 points for the first time in history. Wall Street was only shaken by some daily sell-offs and temporary leaps.
The calm is such that Italian stock market has surpassed with its main index, the Ftse Mib, American stock market main indexes.
Over the past six months, Ftse Mib rose by +15,66%, while the Nasdaq rose by +13,25%, Dow Jones +8,78%, and the S&P500, up only of +6,52%. These are the highs of all time achieved by the American Stock Exchange.
Among the factors that favor the upswing of the Italian Stock Market are the continued rescue of the banking sector by Italian State, the bullish sentiment spread on the international markets and the failed referendum for the exit from Europe of France and Holland.
However, we can make a positive conclusion. The stock markets has undergone a rally that has been driven by the improvement of the global economy which in turn has generated a growth in corporate earnings.