Permanent weakness or temporary weakness? Dollar market review.

Over 720 coronavirus infections have been reported worldwide. The seemingly minor problem originated in China is currently the biggest bane of European markets. The epidemic center has moved to the Old Continent and it is not expected to leave us soon. Based on reports of a new global threat, we observed a strong increase in safe harbors at the turn of January / February. The same rally and impulse for further increases were caused quite recently, among others by information about the growing number of cases. Strong dollar appreciation hit most of the world importers. Nevertheless, the situation changed at the end of the week. The dollar weakened against major currencies close to 2%. What was the reason? One could argue a lot about this topic. We distinguished two most important factors. The first is the increase in morbidity in the United States, the second is a huge increase in applications for unemployment benefits. We'll discuss both in more detail in our summary.

The USA in focus

Not so long ago, the US has seen one of the highest jumps in unemployment benefit claims. It came from the level of 212 thousand. up to 281 thousand These data were alarming until ... we did not know the current forecasted readings of this indicator. Preliminary report showed a jump in growth to 3,3 million applications. It is worth emphasizing that the readings for March are currently very preliminary and the number of people willing to receive this benefit may still change (including the worse). The first reactions from the market were apparently irrational. Indices, including (with particular emphasis) mainly American, recorded nearly 4% increases.

Economic packages save USD?

In fact, the first "initial" dollar depreciation may be ahead of us. The rescue that investors have only forgotten for a moment is the fiscal support package that the United States has prepared for its own economy. The amount of exactly 2 trillion dollars may be able to stimulate investors and slightly "soften" not necessarily good data from preliminary readings of applications for unemployment benefits. Where will the money be deposited? They are to support first of all medical assistance, unemployed persons and enterprises in particularly difficult situations (mainly small companies). The injection of cash is not only intended to provide real help, but also to affect purely psychological aspects. The presence of authorities in hard times and a keen interest in a difficult situation calms the markets and society at large.

The mood in the USA is spectacularly different. The number of infected in the country currently exceeds 60 thousand. Donald Trump is a great enthusiast despite such a high number of cases. The US President counts on keeping the situation under Easter, which, even in very optimistic scenarios, is very unlikely for many doctors.

Does the Fed have anything up its sleeve?

March began with massive activities of central banks. Federal Reserve reduced interest rates by 50 basis points. In the context of the broad market, this was not a very significant move. In addition, the Fed will allocate 700 billion USD for the purchase of bonds. All this in order to maintain liquidity at the appropriate level. Last week, a message came out regarding (it had overtones) almost unlimited purchase of debt securities. The limitation in this limitation is to be the word "as much as needed". Therefore, this number is not known more precisely. The reserve, on the other hand, depends on maximally maintaining liquidity. However, it looks like in the near future cash will flood the market.

Chart EUR / USD, H1 interval. Source: xNUMX XTB xStation

The most popular pair with the dollar - EUR / USD (H1 interval), looks quite optimistic. The euro has used the weakness of the US currency to make up for some of the recent depreciation. From a purely technical point of view, the average, trend and levels of support and resistance are currently on the euro side. The first signal for a possible reversal of the situation will be exceeding the level of 1,10857.