Week in a Glance: best week for USD and worst for stock market

28 sept. 2020

In terms of price dynamics in financial markets, last week was the best since April for the US dollar and one of the worst for the US stock market this year. There were many reasons for this behavior of assets: the week started with a banking scandal, and ended with the second wave of the pandemic in Europe. In addition, the head of the Fed, Jerome Powell, spoke three times in Congress, urging Congressmen to adopt a new stimulus package to save the economy. We will talk about this and other events of the past week in this report.

The week kicked off with the publication of an investigation by the International Consortium of Investigative Journalists (ICIJ), according to which several global banks were involved in transactions marked as possible money laundering. The total amount of these transactions exceeded $ 2 trillion over a nearly 20-year period. As a result, shares of these banks fell and pulled the stock market in general. According to BofA, the outflow of funds from the US stock market exceeded 26 billion, which was the third-largest weekly capital outflow on record. Our recommendation “sell” has worked well, but has not lost its relevance.

A full-fledged second wave of the pandemic began in Europe, as a result, some countries reached absolutely record values of new cases per day (for example, France). So, the V-shape economic recovery in such conditions looks less and less probable and, at best, it is worth counting on the W-pattern.

Against this backdrop, Fed Chairman Jerome Powell made three testimonies in Congress insisting on a new stimulus package. And it looks like his efforts were successful. Democrats have begun drafting a new stimulus bill that includes an estimated $ 2.4 trillion. The proposal could be voted on in the House of Representatives next week. However, there is a high probability that the Senate will block it again.

Against this background, the dollar took full advantage of the status of a safe-haven asset and showed the best week since April. In general, while the Dollar Index is above 93.60, we do not see any threats for its further growth, and therefore this week we will look for opportunities to buy it.

As for the coming week, the main event in terms of economic data will be the publication of statistics on the US labor market on Friday. In addition, a possible vote on the Democratic stimulus package and negotiations on Brexit will generate increased interest.
Speaking about our recommendations for the week, in addition to buying the dollar, we will sell oil and gold, as well as look for opportunities to sell in the stock market.