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10:13
The dollar received an ultimatum! If the USD index does not continue to fall, the Fed will act even more aggressively than now, and the loss

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Could the euro have grown if the S&P 500 is ready to be the best weekly gain since 1974, the eurozone finance ministers finally agreed on a collective bailout program, and the minutes of the Governing Council meetings in March recorded a split in the ECB? The main currency pair soared to important resistance at 1.0965, a confident assault which will open the "bulls" the way to the north.

 

 

At the end of the two-day meeting of the Eurogroup finance ministers, a package of measures to save the currency block from the coronavirus for € 500 billion was agreed. Credit lines from the European Stability Mechanism will be available for two weeks, the European Commission’s proposed unemployment insurance scheme for € 100 billion will start operating finally, a pan-European guarantee fund will be created, capable of supporting financing of € 200 billion. The lack of consensus hindered the bulls on EUR / USD at the auction on April 8, but only he was found, the dam burst. 


The minutes of the March meetings of the ECB showed that some officials are against lifting existing restrictions on bond purchases. Some of them, instead of expanding QE, proposed launching OMT, a direct financing program developed in 2012 for stressed eurozone countries with a credit line with ESM. The split in the ranks of the central bank is a bullish factor for the euro. 


Nevertheless, the main driver of the EUR / USD rally was the continued growth of US stock indices, inspired by the OPEC + decision to reduce production by 10 million bps; Jerome Powell's words about the violent, active and aggressive use of the powers of the Fed until the regulator is sure that the US economy is firmly on the road to recovery; as well as the extent of monetary stimulus. $ 2.3 trillion Such is the volume of new and expansion of existing lending programs. It is curious that in March the central banks of the G-7 countries, headed by the Federal Reserve, bought bonds worth $ 1.4 trillion, which is almost five times higher than the previous peak of $ 270 billion, which took place in April 2009. 

 

Dynamics of bond purchases by central banks 

        

Source: Bloomberg.

 

Such colossal flows of dollar liquidity cannot but affect the greenback rate in the future. As, however, the Fed’s balance sheet will increase to $ 9-12 trillion by the end of 2020, and the federal budget deficit will expand to $ 3.6 trillion in the current fiscal year ending September 30 and up to $ 2.4 trillion - in the next, in accordance with the forecast Goldman Sachs. The American currency will look vulnerable in 2021, all the more so since there has been a flaw in the “dollar smile” theory: according to JP Morgan, the US economy will suffer the most from the coronavirus, so the question of its faster recovery rate remains open. 

 

Losses from coronavirus

  

Source: Bloomberg.


Just like investors do not want to be late to buy shares, they do not want to miss the moment when you need to sell greenbacks. If G7 countries support OPEC + in reducing oil production, a break of resistance by 1.0965 will strengthen the risks of continuing the EUR / USD rally towards the upper limit of the consolidation range of 1.075-1.121.

 

LiteForex Analyst Source

 

 

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