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The dollar received news from oil! Black gold intervenes in idyll between greenback and US stock indices


The theme of V-shaped restoration is now in vogue. The American stock market is moving along this trajectory; the global economy and oil are going to move. The market environment of the latter is so unique that WTI allows itself to fall below the zero mark for some time. Sellers must pay extra to buyers to get their barrels in their hands! The world stock indices could not survive such a shock: the S&P 500 fell, pulling EUR / USD along with it. 



If you have free tankers, you can easily organize the best business in the world! The contango in the oil market, when futures for WTI with delivery dates in May 2021 cost more than $ 35 per barrel, and current prices at the moment drop to - $ 37 per barrel, sharply inflated interest in floating storage facilities. Whereas at the end of March, 109 million barrels of black gold were found in the sea, then by the end of the week by April 17 it was already 141 million. The global demand for oil fell sharply due to the pandemic, but it will grow as the world economy recovers. 

It is curious, but such a kind of variation in the prices of the futures and spot markets, according to BTIG research, is a good sign for American stocks. He may experience temporary pain, but there is no talk of long-lasting stress. On the contrary, a gradual increase in WTI will push oil quotes up, boost the S&P 500 and put pressure on the greenback. 

The prospects for the latter are increasingly drawn in gray tones. According to Goldman Sachs, the dollar may be popular in the short-term investment horizon as the main currency of refuge, but as the global economy recovers, it will be actively sold. TD Securities notes that the scale of fiscal and monetary stimulus in the United States in response to the crisis was significantly greater than in other countries, which ultimately will lead to an increase in the budget deficit and weakening of the greenback. BCA Research, citing the deterioration of US government finances, predicts EUR / USD to rise to 1.15 by the end of 2020. And this estimate is close to consensus.

Forecasts on EUR / USD


Source: Bloomberg.

Indeed, according to IMF forecasts, public debt in developed countries will grow this year from 69.4% to 85.3% of national income, in the US - to 107%. Investors are increasingly concerned about the creation of huge unproductive debt in the United States, which will hamper economic growth. It is not a fact that helicopter money from the Federal Reserve will help the GDP to quickly recover. 

It should be noted that before the Fed became insane, by dazzling the markets with an enormous scale of cheap liquidity, the rates on US treasury bonds were higher than most counterparts issued in developed countries. Their sharp decline should have brought down the greenback, but this did not happen due to the high demand for safe haven assets. The delayed effect is likely to affect the dollar in the future, while the EUR / USD bears intend to storm the support at 1.081. Success in this event will increase the risk of the pair falling to the lower border of the consolidation range of 1,065-1,115, make the euro cheaper and create the opportunity for long-term longs to form.


LiteForex Analyst Source


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