The US dollar continues to be in demand in the current conditions, when the economies of developed countries can demonstrate a record decline in GDP at the end of the second quarter of 2020 amid the spread of coronavirus around the world. And if China recently lifted quarantine restrictions, COVID-19 is gaining strength in other countries. According to Johns Hopkins University, the number of cases worldwide has already exceeded 1.4 million, and the number of deaths - 82,000. The United States has already exceeded the bar for the highest number of infected people, where testing has determined the presence of the virus in almost 400,000 people. These figures once again confirm the severity of the problem that the economy will face by the summer of this year.
In this regard, the measures that were indicated in yesterday's release of minutes of the Federal Reserve meeting do not seem exaggerated. However, the minutes did not have a serious impact on the markets, but, on the contrary, even supported them, since the management's lightning response to the pandemic will contribute to a faster recovery of the economy, whatever difficulties it may face in the future. Discussions are already underway on new packages of measures aimed at supporting businesses in times of crisis. Let me remind you that in early March, the Fed lowered interest rates several times to almost zero at an emergency meeting, announcing the introduction of more than six new lending tools to stabilize the situation. We are talking about corporate debt and support for dollar liquidity. Most likely, in the future, the list of the central bank's measures will only be expanded.
During yesterday's speech, the US Treasury Secretary said that he expects to raise more than $2 trillion to fight Covid-19 from various sources, noting the huge demand for the highest-level Treasury bonds. According to Steven Mnuchin's forecast, Congress should approve the allocation of additional funds by today or tomorrow.
According to a survey of WSJ economists, nothing good can be expected from the US economy in the second quarter of this year. US GDP is expected to contract by 25%, and the full-year growth rate could decline by 4.9%. The prospects for the labor market are not very bright there either. The WSJ expects that the number of jobs in the US will fall by 14.4 million in June, and the unemployment rate will reach 13%. The report on the number of initial applications for unemployment benefits in the US for the past week will be published today. It is expected to grow by five million.
The speech of Fed representative Charles Evans was full of pessimism. Evans believes that even in the best scenario, the economy will be weaker after the crisis, and the US needs a national plan to overcome its consequences. What he means by a "national plan" is unclear. Most likely, this is an effort that goes beyond the usual tasks of the Fed. Evans expects the economy to recover in the second half of the year, as do most other economists.
As for the technical picture of the EURUSD pair, it remained unchanged compared to yesterday's forecast. Problems with further growth of the European currency remain in the resistance area of 1.0900, above which it was not possible to gain a foothold yesterday. Buyers of risky assets should not rush to open long positions, but rather wait for the major support update of 1.0825. The lack of bull activity at this level will indicate a deterioration in the market situation, which can throw the trading instrument to the weekly low in the area of 1.0770. We can talk about continuing the upward correction in the euro only after a breakout and consolidation above the resistance of 1.0900, which will lead to an increase in risk assets in the area of 1.1020 and 1.1140.
Today, much attention will be paid to the commodity market, and oil in particular. Leading exporters are planning to hold a virtual summit, at the end of which, as many expect, Russia and Saudi Arabia can conclude a new deal to reduce production and end the price war. Such news at the end of last week led to a sharp increase in oil prices from their annual lows, but no official decision was made, so black gold was trading quite calmly for the entire week. However, Saudi Arabia said that it would agree to the reduction only if other producers and exporters reduce their production. This also applies to the US, which should also take measures to reduce production. Last Thursday, US President Donald Trump held a meeting with the heads of the country's largest oil companies, during which such measures were discussed.
If the decision to reduce production is made, most likely, oil will continue to grow to $31.50 per barrel for the WTI brand, and the long-term goal will be resistance at $35 per barrel. Another disagreement on this issue can quickly pull down oil to lows in the region of $20, which will very quickly push black gold to the psychological mark of $15.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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