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Decreased interest in risk


24 February 2021

I will start today's review with the fact that the current week began with moderate sales on the stock markets of the United States and Europe. I would also like to draw your attention to the fact that the incredibly strong growth in US government bond yields has stopped, thereby indicating a decrease in risk appetite. Although there is no obvious trend change for this instrument, the market is already quite actively reacting to changes and everything is not as simple as it may seem at first glance.

The decline in US government bond yields signals an increase in demand for one of the most reliable investment instruments. So there is a demand for protective assets. Indeed, gold has gained slightly since the beginning of the week, returning above the technical and psychological resistance level of $1,800 per ounce, thereby confirming the theory of a decrease in risk appetite.

But when we talk about protective assets, it is impossible not to pay attention to the US dollar, which is quite actively performing this function. And here we have a conflict of interest, because the decline in government bond yields indicates that money is becoming cheaper, in this case, the US dollar, and at the same time, global interest in the US currency will grow against the background of increasing risks of uncertainty. Therefore, the US dollar index can enter a fairly wide sideways trend.

And now let's move on to the cryptocurrency market. The volatility of bitcoin trading has increased significantly, and since the beginning of the week, it has lost more than 13 thousand dollars or 22% in price. Last week, I noted the risk of developing a corrective decline, while it is extremely difficult to predict the depth of the collapse. One thing can be said right now, that the obvious sell-off in the stock market will also affect the cryptocurrency market, thereby showing a general decline in interest in risk.

A general leveling off of the current situation and, as a consequence, a clear cooling of the markets may occur in the event of optimistic statements from the representatives of the Fed and the government about their readiness to monetary stimulate the American economy for a long time by providing financial assistance to the population and business. But already now we hear about the risks of hyperinflation in the United States, which significantly reduces the likelihood of this scenario.

At the end of this release, I will draw attention to the Bank of England's monetary policy report, as well as to the speech of the Fed governor in the US Congress with a similar report. As a consequence, trading volatility in the financial markets may increase noticeably today.

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