Salvation drowning - the handiwork of drowning. Activities in the field of the Fed rescue the US economy from the crisis of liquidity, solvency, and by the recession affects its size. Unlimited repos and of QE, the rate cut from 1.75% to 0.25%, currency swaps with 14 central banks of the world, to stabilize the program of corporate debt market, addressing of BlackRock, the largest asset manager in the $ 7 trillion, with a request to buy commercial paper investment class ... This impressive monetary expansion the world has ever seen. Do not be surprised if actively resisted in the past the idea of joint currency intervention with the Treasury, the Fed at this time give the nod.
Investors today are more concerned with the question of where to park their own money, not what will happen to the economy. From a fundamental point of view, a deeper drop in European business activity compared to the US in March was to support the "bears" on EUR / USD. According to Markit estimates, the current values of the index of purchasing managers signaled a reduction Eurozone GDP by 8%, the US GDP - by 5% y / y. Rebound is unlikely, most likely, the PMI will continue to dive into the abyss.
The dynamics of business activity
Source: Wall Street Journal.
Indirectly the euro in response to the release of the disappointing statistics on German economic activity and the strengthening of the US dollar in response to the release of US purchasing managers index may signal that the Fed and the Treasury have already embarked on the path of intervention. When everyone is buying, there is a great opportunity to sell and vice versa. In my view, the market has taught us to be inadequate moves during the crisis, and the extent of EUR / USD movement did not give reason to assume the existence of a major player. If only it was not about the rehearsal.
A strong dollar is a headache not only for the United States, whose economy already weakened by the influence of the coronavirus, but also other countries. The total amount of credit debt denominated in US dollars, rose from $ 2 trillion at the beginning of the century up to $ 12 trillion. One China in 2020 to pay off debts of $ 120 billion. The question is where to take the dollars and how much they will cost.
Dynamics of loans denominated in US dollars
Source: Financial Times.
Fed Agreement on mutual exchange of payment flows with 14 central banks of the world and the Fed's intention to buy unlimited amount of Treasury and mortgage bonds somewhat cooled the demand for greenbacks, as evidenced by the dynamics of cross-currency swaps. However, if this is not enough to prevent the debt crisis, Jerome Powell and his colleagues can go for foreign exchange intervention. This conclusion was Goldman Sachs and JP Morgan.
The dynamics of cross-currency swaps
Source: Financial Times.
If the enthusiasm of investors to buy dollars as the almost the only means of saving the money will start to fade, the "bulls" on EUR / USD will be able to organize a second assault on the upper boundary of a short-term consolidation range 1,064-1,084. The success of this event will create the preconditions for the development of the correction of the main currency pairs in the direction 1,0965-1,098.
Source analyst LiteForex
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