Week in Glance: India and Australia, deflation and NFP

Last week kicked off with the fact that the S&P 500 ended its best August since 1986. Well, the week ended with the biggest two-day fall in the Nasdaq Index since March. And it is far from the fact that the worst is over for buyers. Rather, on the contrary, the collapse of the bubble may become full-fledged with all that it implies.

We have already talked many times about the huge fundamental divergence that formed between the dynamics of prices in the US stock market and its economy. Statistics on the US labor market once again showed that a quick economic recovery should not be expected, which means that the divergence can be eliminated only due to a strong decline in prices in the stock market.

The data on the Australia GDP (decreased by 7% in the second quarter, and the country officially entered a state of recession) and India (the drop in GDP in the second quarter was 23.9%, which was the biggest in the entire history of observations) reminded that the economic crisis - this is not a local problem of the United States, but a global one, so external forces are unlikely to help the USA.

Another important event of the past week was the information about deflation in the Eurozone. Which provoked the comments of the ECB chief economist that the exchange rate is an important component of monetary policy. Markets took this as a signal of a possible devaluation of the euro. Considering that the next ECB meeting will take place this week, it is likely that the current week will not be the easiest for the euro.

In addition, revised GDP data for Japan, Eurozone and Great Britain will be published this week, so volatility spikes in currency pairs with the Japanese yen, euro and pound are also very likely.

As for the general situation in the foreign exchange market, the dollar is still under pressure. Despite the heroic retention of 92.20 support line, the downtrend still prevails and while the Dollar Index is below 93.60 its upside potential is limited. Accordingly, we will use any growth of the dollar for now as an opportunity for better sell points.