The euro recovered yesterday, reaching the level of 1.1168. However, even if the EUR / USD pair continued its correction last Friday, the pair's buyers failed to return the price to its previous heights. Now, there is a positional struggle, where, if the dollar finally regains its status as a safe asset, the EUR / USD pair will be under constant pressure until the end of the coronavirus pandemic. On the other hand, if the euro regains its positions instead, the dollar will be the vulnerable one for a long time.
Yesterday's rally was in favor of the dollar. After the Fed's aggressive actions, the pair was able to stop its fall, partially recovering its lost points.
In the midst of trading, the Federal Reserve Bank of New York announced an increase of $ 500 billion in the volume of weekly repurchases of securities in March, causing the US stock exchanges to collapse once again. The S&P 500 index fell by 9.5% for the day, losing 26.7% in comparison with the peak of last month. At the same time, the Dow Jones Industrial Average lost almost 10%, its most negative result since its fall 33 years ago.
The Fed has resorted to a radical solution in the hopes of flooding the market with money, conducting a 3-month REPO operation with a limit of $ 500 billion. These volumes will be offered on a weekly basis until the end of March.
Dealers will also be offered 175 billion in REPO-overnight, and 45 billion in two-week REPO. The structure of Treasury bonds purchases in the amount of $ 60 billion will be changed as well.
According to a number of experts, despite such solutions, the stock market will still not recover, given the dynamics and negative consequences of the spread of the coronavirus. As a result, rumors that the Fed will soon resort to more aggressive measures are circulating. Unofficial information says that the regulator is ready to provide markets with more than 4 trillion in REPO operations, and a rate cut by 50 basis points will happen.
Meanwhile, Donald Trump and his advisers are calling on the Fed to lower the rate to zero, simultaneously accusing Powell of slowness and indecision.
The US regulator is demonstrating an extremely "dovish" position. However, in the context of the prospects of the EUR/USD pair, another question is of interest – will the dollar get an "immunity" from the actions of the Fed? To date, this question remains unanswered. If the market uses the dollar as a protective asset, the Fed's "dovish" decisions will only temporarily limit its revaluation.
As of this moment, the news is still pessimistic. The number of infected people has exceeded 130 thousand, and the geography of the epidemic has expanded to 110 countries. Even Canadian Prime Minister Justin Trudeau was placed in isolation, as his wife was diagnosed with COVID-19. In the US, 25 States of the country have already declared a state of emergency, so there is no reason to de-escalate the situation. Therefore, if the dollar continues to use the market as an "island of security", the EUR/USD pair will be able to test the 10th figure again today.
