27.03.202009:17 Forex Analysis & Reviews: Enduring dollar: play all-in

In a world where most economies in developed countries are snapping due to the raging epidemic of the coronavirus COVID-19, the US currency remains the most sustainable financial instrument. Many experts are sure that neither currency intervention, nor the collapse of the American economy by 30% will stop the growth of the greenback.

According to economists, the dollar is at great risk, but this risk is justified. The entire American economy is at stake, a possible collapse of which will cause great tumult. Thus, the greenback has to go all-in, that is, play big, otherwise it cannot repel, experts say. Many of them believe that in the current conditions, the US dollar is overbought and the demand for it is unreasonably high, as is the belief of market participants in the power of the dollar. Nevertheless, the combination of these factors allows the greenback to go ahead, acquiring super stability, analysts say.

According to the currency strategists at JPMorgan Chase & Co., even the grandiose changes in the purchase of assets among large investors will not be able to undermine the strong position of the dollar. With the widespread outbreak of COVID-19, a number of investment funds are expected to allocate billions to buy shares to prevent an unprecedented economic downturn.

The current situation was in the hands of the greenback. At the same time, experts note that the monetary reserves of the Federal Reserve and the fiscal package of US authorities amounting to $2 trillion could not weaken the global accumulation of dollars. Against this background, stock and bond volatility indicators reached peaks that have not been observed since the 2008 crisis, and the S&P 500 index fell by 16%.

The Fed has now expanded its dollar swap lines to foreign central banks. At the same time, the financial institution supports both the national money market and commercial paper markets, issuing short-term loans to enterprises, if necessary. Many analysts believe that the measures taken to curb the spread of coronavirus adopted by the regulator will not help the US economy. The world's leading economy can stop, leading to the closure of enterprises and the reduction of millions of jobs. However, not all economists predict this outcome. Most of them believe that a sharp collapse in the second quarter of 2020 will be replaced by a slight rise in the second half of the year, when the pandemic starts to subside.

A key role in economic issues, as well as in strengthening the dollar, is played by macroeconomic data, particularly the report on applications for unemployment benefits in the United States. It covers the weekly period from March 13 to 20. As expected it was published on Thursday, March 26 and did not bring any positive either to the greenback, or to the American economy as a whole. Analysts predicted from 1 to 1.1 million new applications for unemployment benefits, but the reality was unexpected. The growth in the number of applications turned out to be three-fold: their actual number for one week amounted to 3.283 million. Note that the usual value of this indicator is in the range of 220–230 thousand. Experts seriously fear an uncontrolled growth in applications in the near future.

Leading strategists at Morgan Stanley previously reported a recession in the United States of about 30% year on year and is expected to happen from April to June this year. According to experts, such a collapse will lead to a rapid rise in the unemployment rate by approximately 12.8%. It is possible that this will turn out to be a softer option compared to reality.

However, the current situation gives good chances for the dollar. This week has brought the EUR/USD pair to an upward trend, which continues to this day. Previously, experts considered this movement to be corrective, but now they are recording a full-fledged upward spiral. On the morning of March 27, the pair was in the range of 1.1042–1.1045, overcoming the next peaks and trying to stay on the already conquered levels. Now the tandem has approached the levels of 1.1050–1.1052.

In the current situation, the dollar has to be very strong to resist the onslaught of new challenges. Experts are not completely convinced whether the greenback will be able to cope up amid the raging pandemic in the world, where economies are nearly to collapse. However, as analysts said, there is no backing up. One has to get involved in the struggle, using all economic and financial reserves.