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Dollar off the lights! Return the economy to work hard. This is not the same as that previously included the lights off


Back to the Future. The heroes of popular film sent in the past to change the future. The global financial crisis 2008-2009 is currently being used as a template for forecasts and investment strategies of the various assets. Despite the fact that the nature of the previous and the current recession is fundamentally different, and coronavirus is more like a natural disaster, after which the economy usually recovers quickly, the number of supporters of the U-growth US GDP increases. If everything is going to happen, something to buy in too early. As, however, and to sell the dollar.



S & P 500 growth of 19% from its March low suggests that the massive fiscal and monetary stimulus from the White House and the Federal Reserve have calmed financial markets. However, stock index is still more than 20% lower than it made in February, a historical high. At the end of trading on April 7, he went down sharply, and the belief that at the end of the trading session are professionals, increases the risk of continuation of the peak. The shares are still vulnerable. "Bulls" can scare the news that the epidemiological situation is deteriorating, the message that the government is unable to deliver a financial incentive in the hands of business quickly, or unwillingness + OPEC to cut oil production on the scale needed.

Falling S & P 500 fraught resumption sales EUR / USD. Volatility pair 2020 significantly increased, while the cost of short hedging exchange rate risks is lower than on the long-term. Investors believe that the Fed's monetary easing and the ECB is paying off, but still afraid of the future.

Volatility of EUR / USD


Source: Bloomberg. 

Let the chief economic adviser to US President Larry Kudlou argues that the US economy is able to return to work at full power for 4-8 weeks, the former head of Fed Chairman Ben Bernanke is not waiting for her deeds. After a reduction of 30% or more in the second quarter GDP will recover for 1-2 years. Get rid of the coronavirus is not easy. It's not the same thing as to turn off and turn on the light. Even after a sharp decrease in the number of infections and deaths requires implementation of testing and monitoring mechanisms, as well as the preservation of social distancing, albeit on a smaller scale than at present. It is necessary to give confidence to companies and individuals that they can return to work without the risk of becoming infected.

You should not discount the possibility of a second wave of the epidemic in the fall, which creates prerequisites for the preservation of financial market volatility at elevated levels and causes investors to hold US dollar and other safe-haven assets in portfolios.

In my opinion, the risks of S & P 500 medium-term consolidation and EUR / USD are becoming more pronounced. To help the "bulls" comes the belief that the coronavirus can be defeated, and the willingness of the White House and the US Congress to increase fiscal stimulus if needed. "Bears", by contrast, rely on bad news, including a significant deterioration in macroeconomic statistics across the United States.


Source Analytics LiteForex


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