The interest rate cut until the 0-0.25% band, historical lows reached during the great crisis, by the Fed, a decision made in an emergency meeting on Sunday, along with the return to QE, have not only failed to encourage the stock markets but have contributed to increasing the level of alarm among investors.
Monetary policy measures are not effective in this crisis scenario, fiscal measures of great magnitude are needed to face this situation in which a large number of companies are going to have to lock their activity not for financial reasons but due to total slowdown. in production and in demand.
So far these stimulus measures have not been adopted.
Only Germany has announced a package of measures in this regard and it is expected that the EU will enable funds worth €400 Billion and make the rules of public deficit more flexible.
Stock markets continued their decline on Monday with high levels of volatility, accumulating from the start of this crisis losses of 30% in the American indices and 40% in the European indices, falls that have caused collateral damage in corporate debt that at a certain level can be hardly reversible.
These levels of stock markets are not reasonable from a fundamental perspective, at least without knowing the duration of the crisis, something that is impossible to know.
There is talk in the market of the return to the prohibition of short positions and even of the total or partial closure of some markets. If powerful fiscal measures such as those mentioned above are announced, the stock markets could stabilize from now on and even rebound in some stocks that are already in the value zone.
A concerted action was also taken on Sunday by major central banks to facilitate liquidity in US dollars over the 3-month period through swaps. This measure comes to solve the tension in the money market that I pointed out in previous comments and that caused the closing of short dollar positions.
With this, USD/JPY reversed to the downside and ended up losing 300 pips on Monday.
But it is very likely that, with the sole exception of the USD/JPY which will continue to be pressured by the strength of the Japanese currency, the US Dollar will strengthen in the near future.
The emerging countries that will also be immersed in this crisis situation and that are indebted in the North American currency will be forced to buy Dollars. In fact, it is nothing more than what we know as a flow towards safe haven currency.
The consequence of this in EUR/USD is bearish. In the case of the Euro, we must also take into account the sales of sovereign debt that has occurred in all countries, including Germany during the last days.
The spread between the Bund and the T note has narrowed in favor of the treasury, which is usually a preview of EUR/USD declines.
At the moment, the pair continues to move in range between 1.1150-1.1220. A close below 1.1150 is required to make way towards 1.1000 and below.
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