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26.03.2020 11:08 PM
EUR/USD. US record breaking, Powell's dovish speech and the European Marshall Plan

The euro-dollar pair continues to grow for the fifth trading day in a row. Every day, the price is growing more confident and is recoilless: if the eighth figure was stormed by the bulls for three days, then the subsequent price gains were given to buyers relatively easily. That is why the market started talking about the fact that the pair formed a price low in 1.0650, and now we are not dealing with a large-scale correction, but a break in the downward trend. And if the dollar does not regain its powers as a defensive tool amid a slowing global economy, the EUR/USD pair will not only gain a foothold in the area of the 10th figure, but also return to the range of 1.1100-1.1250 (the lower and upper boundaries of the Kumo cloud on the weekly chart). To date, the fundamental background for the pair contributes to price growth-primarily due to the vulnerability of the dollar.

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The US currency was under pressure from several factors. First, dollar bulls were disappointed by the head of the Federal Reserve, Jerome Powell, who voiced quite dovish rhetoric. He said that the regulator has "room for further maneuver", so the Fed can continue to soften monetary policy, if circumstances require it. Looking ahead, we can assume that circumstances may indeed require the Fed to make such decisions, and in the foreseeable future (in May or June). At the same time, Powell does not see any risks (side effects) associated with the recent decisions of the regulator.

He also said that the current crisis is unprecedented and it will be possible to speak of any confidence only when the coronavirus is contained - both in the country and around the world. At the same time, the Fed chief voiced a very interesting phrase: "...the only limit for the regulator is the amount of insurance from the US Treasury Department, since every dollar from the Ministry of Finance can support $10 in the form of loans from the Fed." At the end of his televised address, Powell admitted that the US economy will show a recession but "recover quickly enough" – again, when the deadly virus is curbed. According to his tentative forecasts, this will happen in the second half of this year.

Thus, the Fed chief not only announced a further easing of monetary policy (there is no doubt that the regulator will have to resort to such steps), but also outlined rather gloomy prospects for the growth of the US economy. Here it is worth recalling that another Fed representative – James Bullard - yesterday voiced a similar position, scaring traders with a 30 percent unemployment rate.

And as if to confirm his words, abnormally high data on applications for unemployment benefits were published today. As a rule, this release almost does not affect the dynamics of the pair – the numbers come out positive or negative in the same range - only a persistent trend to increase or decrease attracted the attention of traders. But today, the secondary release stunned with its result: over the past week, the number of initial applications for unemployment benefits in the United States jumped from 282,000 to 3,283,000. This is a historical record: the growth rate was the highest since the beginning of tracking data (that is, since 1967). The previous record of 695,000 requests per week was set in October 1982. Here it is worth noting that the economists of major banks agree with the opinion of James Bullard that the coronavirus will hit the US labor market – however, according to their calculations, unemployment will increase not by 30%, to 12-15%. In any case, the "first alarm bell" rang today - I believe that the March Nonfarms will also be remembered for a series of anti-records.

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This negative trend is consistent with the rate of spread of coronavirus in the United States. A record number of deaths have been marked over the past day in the country. According to CNN, at least 233 people died from coronavirus infection. In total, 65,273 cases of coronavirus infection were registered in the US, 938 of them ended in death. The largest number of patients - more than 30,000 - is still in the state of New York. Although the spread of the epidemic is growing in other states of the country. If the pace of infection continues, the United States will soon become the world leader in the number of infected people. Against the backdrop of such trends, it is hard to imagine that Trump will decide to remove the quarantine - no matter what arguments of an economic nature he would not have voiced advisers. Scientists and doctors warn: in the event of "complete freedom", millions (possibly, tens of millions) of citizens may die in the United States. Quarantine, in turn, will continue to sharpen the US economy - therefore, the increase in the number of sick and dead from Covid-19 puts background pressure on the dollar.

But the European currency today received unexpected support from Brussels. It became known that EU leaders are preparing a so-called Marshall Plan to save the eurozone economy. According to the head of the European Council, Charles Michel, this will be a large-scale project that should mobilize EU capital within the European budget, as well as mobilize national funds and the private sector. This initiative is still only under discussion (today, EU leaders discussed it during a video conference), but the European currency received support in advance, which made it possible for the euro to be more confident.

Thus, the fundamental background for the EUR/USD pair contributes to the opening of long positions. But it is worth noting that at the moment, the price growth is of an impulsive nature, so in the medium term, almost a 100-point pullback to the support level of 1.0910 is possible (the lower limit of the Kumo cloud on the daily chart). In general, the pair's bulls need to gain a foothold above 1.1070 (the average Bollinger Bands line coinciding with the Kijun-sen line on the daily chart). In this case, EUR/USD bulls will confirm the trend reversal, and purchases will be more reliable, with the goal of an upward movement of 1.1150.

Irina Manzenko,
InstaForex के विश्लेषणात्मक विशेषज्ञ
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