Increased risk appetite weakens the U.S. Dollar, boosts stocks - Market Overview

Increased risk appetite weakens the U.S. Dollar, boosts stocks -  Market Overview

The economic figures published yesterday in the U.S. are another factor confirming the market’s expectations regarding a return to normality.

The published economic data also goes in the same direction at a global level, as China's interannual GDP for the first quarter published this morning and showing an 18.3% increase.

The only factor of uncertainty continues to be the increase in the number of infections, especially in Europe. However, the markets put their hopes in the vaccine immunization.

A weaker U.S. Dollar.

The result of all this in the market has been a return to a greater risk appetite that has slightly weakened the U.S. dollar, boosting stock markets and in a very significant and contradictory way slowing the sale of bonds of U.S. Treasury Bonds.

The rebound in U.S. bond prices has brought yields to lower levels not seen since the beginning of March. In a scenario of higher growth expectations, such as the present one, which would raise expectations of a change in the Fed's monetary policy, the logical reaction would have been the sale of bonds, which usually act as safe-haven assets, and with it the increase in their yields.

But Fed’s persistence to keep rates low until the economy fully recovers and the significant drop in inflation expectations that occurred after the publication of the latest data this week has led investors to change their view towards these assets. Yesterday, many investors closed their long positions in bonds, causing the Tnote yield to drop to ​​1.55%. In terms of price, as we can see in the graph below, it finds itself in the process of completing a reversal pattern that would activate above the 132.65 level and. If this occurs, it could bring the bond to yield levels around 1.35%, corresponding to a price around 134.30.

This decline in bond yields coupled with a weaker dollar in a robust economic growth scenario are factors that support GOLD as an investment asset. The precious metal experienced a significant rise yesterday. Although investor interest seems to have declined recently, something noticeable in the fall of ETF positions, it technically points to a return to bullish movements, especially if the zone where the 100-day SMA line passes around 1800 currently exceeded.

Sources: wsj.com, reuters.com.

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