The Federal Reserve continues to take urgent measures to minimize the economic damage from the coronavirus, and having gathered at the weekend for the next emergency meeting, the refinancing rate was reduced again and this time from 1.25% to 0.25%. The fact that the refinancing rate is being reduced at such a pace, and even during emergency meetings, is very scary, and apparently, for this reason, the decision was made at the weekend. In order to minimize panic in markets that are already practically in a state of free fall. Apparently, the Federal Reserve System, regards the Friday growth of stock indexes, only as a random rebound, after a rapid collapse. Consequently, the Federal Reserve expects a further decline in financial markets. In other words, by their actions, The Federal Reserve seeks to make borrowed capital virtually free to prevent a catastrophic collapse of stock markets. After all, stocks of companies are bought mainly with borrowed funds. Well, the companies themselves have huge debts, secured by their capitalization, and in the event of a rapid decline in the value of their shares, banks are forced to demand early repayment of part of the loans. They have no money for this, which means many are on the verge of bankruptcy. And the previous decrease in the refinancing rate, from 1.75% to 1.25%, was aimed precisely at this. However, since then, stock indexes began to decline with even greater force, driven by the collapse of the oil market. Therefore, in order to save markets, and companies, the Federal Reserve Was forced to cut interest rates even further. But the fact that everything is happening so quickly, and it requires emergency and unscheduled meetings, suggests that the American economy is extremely vulnerable, and the results shown in terms of economic growth are unstable, and perhaps illusory.
Nevertheless, the panic apparently could not be avoided, since Asian stock indexes still continue to decline. So, Nikkei 225 is reduced by more than 2.0%, and Hang Seng by more than 3.0%. So the fears of the Federal Reserve System that the Friday growth of US stock indices is just an accident, clearly find confirmation. At the same time, there is no panic or hysteria in the currency market, although we have seen a massive exodus from the single European currency to the dollar over the past week, which in many ways is the same panic. Given what happens during the Asian session, it will continue quite well during the European one, and despite the Federal Reserve's drastic measures to reduce interest rates, financial capital will continue to run to the United States. After all, by their actions, The Federal Reserve does not leave the European Central Bank any choice but to further expand incentive measures. Thus, a reduction in the refinancing rate of the European Central Bank to negative values becomes even more likely. At the same time, the single European currency is seriously oversold, so the scale of further weakening will not be so impressive. Another thing is that dollar growth will continue.
Refinancing Rate (United States):
From the point of view of technical analysis, we see a downward movement, where the quote finds a foothold in the region of the level of 1.1080, slowing down and forming a consistent rebound. In fact, we continue to record increased activity, as well as the pressure of the external background, which activates speculators to action.
In terms of a general review of the trading chart, we see the development of an inertial upward stroke by more than half. This signal, in terms of technical analysis, suggests that the downward trend has significant chances for resumption.
We are likely to expect a temporary fluctuation within the range of 1.1080 / 1.1180, where it is worth following the price fixing points relative to the given boundaries. If we consider the theory of further downward development, then in this case, the quote must go lower than 1.1055.
Concretizing all of the above into trading signals:
- Long positions are looking towards 1.1180. A deeper move can be considered if prices are fixed higher than 1.1180 and exit to the 1.1205 / 1.1225 area.
- Short positions are considered in case of price fixing lower than 1.1055, with the prospect of a movement to 1.1000.
From the point of view of a comprehensive indicator analysis, we see that hourly and daily periods still retain a downward interest, while minute intervals work on a local rebound.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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