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The situation in the global markets has somewhat stabilized after the collapse of "Black Monday". The question arises as to whether the panic mood will come back again for a long time, accompanied by regular sales of risky assets, growing demand for protective financial instruments and a weakening US dollar.
Of course, such risks are present. The decision of the U.S. Department of Energy to start selling oil from strategic reserves, the expected reduction in interest rates at the Fed meeting in March and an increase in the repurchase of U.S. Treasury bonds to support liquidity in the national financial system will put pressure on the US dollar, which has recently been in a tough position.
On the one hand, the panic surrounding the situation with coronavirus has a negative impact on the growth of the American economy, which was the trigger that led to its depreciation amid the collapse of treasury earnings. On the other hand, as a result of this, the Fed's subsequent actions, the expansion of incentives to $ 100 billion a month, and D. Trump's appeal "to lower the base interest rate to the level of competing countries" became another factor of its weakness.
But in fairness, it should be noted that the rival dollar currencies will also definitely be under pressure due to the actions of the Central Bank. If we talk about the main currencies traded against the dollar, then the regulators of the countries to which they belong will try to lower their rate so that the economies of these countries can confidently compete with American exports in the world market. The RBA, the Central Bank of Canada, and the Fed have already cut back the previous levels of their interest rates. The same is expected from the Bank of England. There is also discussion in the market that the ECB, whose key interest rate is already at zero, can follow the Japanese example and make it negative. The German Deutsche Bank believes that the rate may decline to -0.5% or even to -0.6%. By the way, many investment banks believe that the Federal Reserve may also decide to set a negative level of interest rates in order to stop the panic in the markets.
In this situation, the obvious "weakness" of the dollar will be offset by the same "weakness" from competing currencies, which means that we should not expect its global decline.
In general, observing what is happening in the markets, we can say that on Tuesday, there was just a respite as we previously thought. Moreover, a lot will depend on the speed of rescue measures, primarily the Fed and the US financial bloc as a whole. If everything is done promptly, we believe that the current levels in the stock markets will become a local "bottom", and the previously noticeable drop in the dollar will stop.
Forecast of the day:
EUR/USD is trading below the level of 1.1370. In case that it fails to break through it, it will lead to the resumption of falling prices to the level of 1.1215.
Gold is trading in the range of 1645.60-1666.90. We believe that only a break in this range can contribute to either an increase in the price to 1688.15, or, conversely, to its decline to 1611.35. We are more inclined to the second option, which will only happen if the situation in the markets stabilizes.
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