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The Federal Reserve presented an unexpected and unplanned surprise by lowering the refinancing rate immediately by 0.50%. This decision came as a complete surprise, both in terms of time, since according to the schedule, the meeting was to be held only on March 18. In addition, although the media were discussing the possibility that because of the coronavirus, the largest central banks could lower their interest rates for the sake of reinsurance, but it never occurred to anyone that this would happen so quickly.
It is noteworthy that the content of the accompanying comment begins with the words that the American economy is in excellent condition. However, the decision to reduce the refinancing rate was made due to the risks that the coronavirus carries. To simply put it, the Federal Reserve believes that coronavirus can seriously damage economic growth. However, this is not yet known, but the Federal Reserve System is proactive in a way that it never acted. Even in 2008, an unplanned reduction in the refinancing rate occurred in the midst of a raging financial crisis. The damage from which was already felt around the world. However, not only this causes suspicions, since the decision itself did not lead to a panic weakening of the dollar, because it has already declined so much in the past few days. That is, this decision was won back in advance. But after all, everything was only hypothetically argued on the possibility of lowering the refinancing rate clearly unaware of the extent of the decline, as well as time. Thus, in this situation, it is impossible to get rid of the feeling that one of the major market participants knew about such a decision in advance.
Refinancing Rate (United States):
In other words, the dollar will not move down in price, since everything depends now on what other central banks will do, especially the European Central Bank. Indeed, by virtue of its size, the Federal Reserve System has put all other central banks in an extremely unpleasant situation, and now, they will have to somehow react to yesterday's events. Therefore, the main question now sounds like this: when will we see a negative refinancing rate at the European Central Bank? Perhaps, this will happen on March 12. So it is precisely the single European currency that will now be under pressure. But for now, the market is confused.
From the point of view of technical analysis, we see the quotes returning to the level of 1.1180, against the background of the news flow, where the quote is gradually moving into the stage of deceleration and, as a fact, to rollback. In fact, we were faced with a sharp surge in activity, where speculative interest had local boundaries, and the fear of consequences exceeded all expectations. The results was ambiguous.
In terms of a general review of the trading chart, we see that the quote is still at the top of the previously set inertial move, where overbought is invariably maintained.
It is likely to assume that the characteristic uncertainty will put pressure on the single currency, which, with a characteristic overbought, can lead to a correction in the direction of 1.1100-1.1080. In view of alternative plots, we consider a temporary fluctuation within the limits of 1.1140 / 1.1200.
Concretizing all of the above into trading signals:
- Long positions are considered in case of price fixing higher than 1.1220, where the quote will rush exclusively against the background of emotions.
- Short positions are considered in the case of the correction phase, lower than 1.1140 in the direction of 1.1100-1.1080.
From the point of view of a comprehensive indicator analysis, we see that technical instruments are prone to purchases due to the strong upward trend in history. At the same time, minute segments alternately signal a sale due to an attempt to recover.
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