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Main » 2020 » March » 20 » The dollar could smell the roast! Rumors of foreign exchange interventions can be an occasion for the EUR / USD retreat
The dollar could smell the roast! Rumors of foreign exchange interventions can be an occasion for the EUR / USD retreat


US $ 700 billion QE - only the beginning of large-scale action of salvation of the US economy. For the first two days, the Fed bought Treasuries by $ 275 billion of the announced $ 500 billion and mortgage bonds - to $ 52 billion of the $ 200 billion announced for the purpose of market saturation necessary liquidity. However, when, due to disruption of supply chains liquidity crisis turns into a solvency crisis, the greenback is doomed to growth. Stop the revaluation of a particular state is not able to. It requires efforts from all parties. 


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When the amount of global commitments denominated in US dollars, is $ 12 trillion, or about 60% of US GDP, and the greenback's share in world trade flows, cross-border lending and risk-free assets, Goldman Sachs estimates - 40%, 50% and 65 85% should not be surprised flight to the dollar during the global economic crisis. Just as people buying "American" on the background of a sharp devaluation of national currencies, stocks of companies are increasing "green" because of violations of the supply chain. If they can not pay off buyers, then where they will take the money for the payment of bills? 

Are Fed swaps panacea? The Fed has expanded the list of central banks, with whom he will share liquidity. By the resources provided by the euro area, Japan, Canada, Switzerland and the UK, added swap lines by $ 60 billion to Australia, Brazil, South Korea, Mexico, Singapore and Sweden and $ 30 billion for Denmark, Norway and New Zealand. 


Fed swap lines with other countries


Source: Bloomberg.

Alas, to meet the increased demand for the dollar by means of agreements on the payment flows is unlikely. Selective approach in the era of coronavirus creates associations with social exclusion. Some people get the American currency from first hand, the second - no. Their isolation will warm up even more interest to the greenback. National currencies fall and the local Central Bank is trying to fight it alone with the help of intervention or hike. Will not help. We need a coordinated effort along the lines since 2011, when the G7 countries actively selling yen strengthens rapidly.

A strong dollar is disadvantageous States as revaluation financial conditions worsen, however, due to a significant accumulation of US dollar-denominated debt, it is disadvantageous to other countries. In this regard, I would not be surprised large-scale sales of greenbacks from the G7. According to BofA Merrill Lynch, it will happen in case of exceeding the index level of 104 USD and EUR / USD drops below 1.05. High probability of participation in the foreign exchange interventions the Fed, which by means of a sharp decline in the federal funds rate has allowed the dollar to take away from the euro and the yen the status of the main funding currency, demand for which in the conditions of increased volatility is traditionally high. 


The dynamics of the volatility of the Forex


Source: Bloomberg.

Concerns about Forex intervention in the life of the powers that may be the reason for the partial fixation by speculators profit on shorts on EUR / USD, which will lead to a rollback. However, as long as the pair stays below 1,085, the situation is completely controlled by the "bears".


Source analyst LiteForex


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