Gone are the days of market “insensibility” to economic events – Market Analysis – June 25

Global indices plummet as second wave of Covid-19 hits hard

In just two days, the entire market's entire focus has turned to the contagion data of the epidemic.

When the economic figures showed a significant improvement and everything indicated that the evolution of those infected with COVID19 in the world was not going to influence the decision of investors, the growth of cases in the United States (mainly in Texas, California, and Florida) and the world total of 164k on June 23 (of which a quarter belong to Brazil) have rekindled the fear of new lockdown.

All this has coincided with the publication of the IMF world economic growth forecasts, which have been revised downwards, showing an even bleaker picture. In any case, analysts are used to noticeable variations in the IMF's economic projections, which is why institutional investors often take their research with a pinch of salt.

But, in reality, none of the above factors represent a substantial change in the scenario than the previous week in which the mood of investors anticipated a rapid recovery and greedily bought the stock markets, so as not to be left out of the uptrend.

If we look at all these movements with a higher perspective, they are still regular market movements in which there are apparent corrections within a trend. The volatility of the stock markets has been relatively stable since the end of April, and, for the moment, they do not anticipate further setbacks.


Major currency pairs

Something more of volatility, or instead of directionless, is observed in the currency market.

The US Dollar has weakened significantly since the end of May amid a scenario of greater risk appetite. According to the opinion of most investors, this trend will continue in the medium and long term with dollar interest rates at record lows.


But when the tension in the markets arises, the demand for Dollars increases suddenly.

This indicates that there continues to be a shortage of Dollars in the market, chiefly, and almost exclusively for emerging countries that issue their debt in US currency.


These Dollar purchase flows, such as the one we observed in the graph in the case of the USD/MXN since yesterday, have a direct influence on the price of the Dollar against the rest of the major currencies.

EUR/USD has lost almost a figure and a half in two days without any fundamental motivation, on the contrary, the evolution of the pandemic in Europe, even with occasional flare-ups, is performing better than in the rest of the world, and expectations of a happy ending for the rescue fund are high.

The sudden changes in mood will disappear so that EUR/USD can overcome its resistance levels between 1.1350-60 and head towards new highs.

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