27.03.202014:05 Forex Analysis & Reviews: The dollar is tired of roller coasters

Despite the fact that recently we can hear a lot of talk about the violation of economic relations, about the inadequate reaction of markets to macroeconomic statistics and changes in monetary policy, the links between central banks, governments, and stock indices continue to work. An unprecedented monetary and fiscal stimulus from the Fed and the White House, which is estimated at $6 trillion, cut off the oxygen to the "bears" on the S&P 500 and allowed the US equity market to recoup more than half of its losses. From the levels of record highs, it collapsed by 35%, but then within 3-4 days, it rose by 20%. Like a roller coaster, it did not leave the EUR/USD pair indifferent.

When the whole world goes into a recession because of the coronavirus, and stocks are disposed of as toxic assets, there is no better option to save your money than to buy the US dollar. Cash is needed for investors to maintain positions in the securities market, for local governments to close cash gaps, for companies to make timely payments to their partners, and for other States to repay us - denominated debts. Their size has grown since the turn of the century from $2 trillion to $12 trillion. As a result, the collapse of the S&P 500 provoked increased demand for the dollar. Its value, measured using cross-currency swaps, rose rapidly, which pushed up the USD index.

Dynamics of cross-currency swaps and the USD index

Agreements on mutual exchange of payment flow between the Fed and 14 central banks of the world, unlimited purchases of Treasury and mortgage bonds by the Federal Reserve, which, by the way, expanded the balance of the regulator to more than $5 trillion, and $2 trillion of fiscal stimulus from Donald Trump calmed investors. Stock indices moved north, and interest in the US dollar as the main safe-haven currency began to fall. There were some fears that the terrible statistics on applications for unemployment benefits will cool the ardor of the "bulls" in US stocks, but this did not happen. As a result, the EUR/USD pair, supported by an improvement in global risk appetite, rose above the base of the 10th figure. What's next?

In my opinion, the euphoria about a large-scale stimulus will gradually subside. Macroeconomic statistics for the States can become a real nightmare for fans of the US and euro stock indices. Data on business activity in the manufacturing sector and in the service sector from ISM, on employment in the private sector from ADP and on the labor market in the week to April 3 can significantly shake the S&P 500. On the other hand, the market is increasing the number of people who want to buy shares, which growth, as history shows, begins long before the end of the recession.

Thus, the market is developing a situation favorable for the development of consolidation in the US stock indices and the EUR/USD pair. The active "Expanding Wedge" pattern, Fibonacci correction levels, and Pivot levels help determine its range. Most likely, we will talk about 1.087-1.116. Rebounding from the lower border will allow traders to buy euros, from the upper - on the contrary, to sell.

EUR/USD, the daily chart