No matter how angry and pulled the blanket Donald trump, but the Fed continues to manage financial markets. What the US president called too gloomy forecasts was actually a necessity. Jerome Powell and his colleagues do not exclude the V-shaped recovery of the American economy, as the head of the Federal Reserve Bank of Dallas Robert Kaplan said, but the basic scenario for the development of events is the Nike-shaped trajectory of GDP. That it requires high levels of monetary stimulation. As soon as the Fed added a portion of liquidity, the S&P 500 immediately rushed up, causing a serious blow to the dollar.
The Central Bank has revealed the details of its programs for the purchase of corporate bonds and lending to commercial companies. To create a debt portfolio, he intends to use an index approach. Initially, an aggregate figure will be calculated for the entire $ 9.6 trillion market, taking into account which it is planned to make purchases. According to Morgan Stanley, the Fed will buy corporate bonds worth $ 385 billion, BofA Merrill Lynch believes that it will be about $ 419 billion. At the same time, the Federal Reserve is ready to spend about $ 600 billion on loans to companies with up to 15 thousand employees and incomes up to $ 5 billion. Banks. who give them money can sell up to 95% of loans to an investment agency organized by the Boston Federal Reserve.
The stock market responded to the central bank's generosity with growth, and it can be understood: stock indices are rising amid ultra-soft monetary policies, a growing economy, low loan rates and positive corporate reporting. With the latter, the S&P 500 will have problems in the near future, however, if GDP nevertheless follows the V-shaped recovery path, the medium and long-term prospects of the stock market will begin to play in bright colors. The growth of US stock indices provoked a weakening dollar, which seems quite logical: since the beginning of May, the inverse correlation between these assets has been steadily increasing.
The dynamics of the US dollar and the S&P 500
Source: Trading Economics.
Strengthening communications is associated not only with the status of the greenback as the main asset-refuge, but also with the effectiveness of the Fed's actions to satisfy foreign demand for the “American”. This required less money than during the previous recession: at the end of the first week of June, foreign central banks disbursed $ 447 billion of currency swaps, in 2008-2009 - $ 583 billion.
The decline in greenback demand has led to a reduction in the cost of hedging purchases of US assets. European investors can afford to return to their favorite strategy for long S&P 500 and simultaneous shorts in the US dollar. As a result of the lower cost of risk insurance, the EUR / USD pair is starting to look seriously undervalued.
EUR / USD dynamics and hedging value
Source: Noredea Markets.
In my opinion, if the 3000 mark for the S&P 500 becomes a local bottom, and the stock index resumes the rally or begins to consolidate, the main currency pair will be able to rewrite the June maximum. Formed from the area 1,122-1,124 long positions should be kept and increased.
LiteForex analytics and forecast of the euro against the dollar today Demidenko Dmitry
Articles → The ECB has cornered the euro. The central bank is not going to refuse negative rates
News → US Dollar Falls After Publication of Consumer Confidence
Articles → Dollar misses poker. Mutual increase in US and EU duties will cost the world economy
News → The American currency received support from the publication of weak statistics from the eurozone
News → US dollar continues to decline for the third week in a row