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EUR/USD Choppy As FED Turns To Aggressive QE

Posted Monday, March 16, 2020 by
Shain Vernier • 2 min read

Sunday marked another pivotal moment for COVID-19 and U.S. Federal Reserve (FED) monetary policy. As medical professionals began promoting the idea of restricted travel and lockdown in the U.S., FED Chairman Jerome Powell took an aggressive stance. In a surprise turn of events, Powell cut interest rates by 1% to a target of 0.25% and 0.50%. This was the second out-of-meeting FED rate cut in March.

Thus far, the move has failed to reassure equities investors or bring stability to the markets. Perhaps the greater concern is bank liquidity. Earlier today, the FED once again got involved, pledging at least US$700 billion in bond repurchases. This announcement comes on the heels of last week’s US$1.5 trillion in short-term loans to support credit markets.

So, what does it all mean? Well, Jerome Powell has chosen to adopt the FED’s 2008 playbook ― QE, QE, and more QE. However, the current FED actions are extremely aggressive by comparison; the stimulus is bold and implemented on vastly reduced timelines. If the rate cuts and injections do not foster pricing stability, we may be in for an unprecedented market crash.

For the time being, it appears that FED actions are driving more panic to the markets, not reassuring investors. On the forex front, the central banking activity has led to choppy trading conditions across the majors, specifically the EUR/USD.

EUR/USD Rejects Macro Topside Resistance Level

The past 24 hours have been huge for the Greenback. Massive rate cuts and repo operations initially sent the EUR/USD north. Since the announcements, the forex has digested the data and the USD appears to have found some solid ground.

EUR/USD, Daily Monthly Chart
EUR/USD, Daily Monthly Chart

The past two sessions have brought a wide trading range of more than 400 pips for the EUR/USD. Here are a few levels to be aware of as the week progresses:

  • Resistance(1): Bollinger MP, 1.1351
  • Resistance(2): 38% Macro Retracement, 1.1458
  • Support(1): Swing Low, 1.0777

Overview: With the FOMC scheduled to meet on Wednesday, it’s anyone’s guess where the EUR/USD will close the week. However, one thing is for sure: interest rates on the USD can’t go much lower. At this point, the CME FEDWatch is assigning a better-than-60% chance that rates are held at 0.0%-0.25% until 2021. Barring a move to a negative rate environment, the U.S. FED will be forced to rely on further capital injections to stabilize the ongoing market rout. And, that move will likely weaken the USD across the majors.

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