The main economic powers have unleashed their full potential to face the crisis derived from COVID-19. The United States, Germany and to a lesser extent the rest of the developed countries have adopted measures to support the economy comparable to those taken after the Second World War.
Also, the central banks of these countries have used all the ammunition available and have flooded the market with liquidity, bringing interest rates to zero.
With this, central banks have managed to stop the financial effects of this crisis, liquidity and credit. At the moment.
Stock markets have reacted positively and for the second consecutive day they have experienced large increases. USA30 ramps up and passes level 38.2 Fibonacci at 21,493. Next level, 22,549 is a major resistance 50% Fibonacci.
The positive momentum of the market could still be enough to approach these levels, but its overcoming will depend on other factors that are the fundamental variables, that is, the evolution of the real economy.
Indeed, once the financial effects are tackled, the market will return to basics where the economic figures that are published will set the pace.
Today, one of the most important indicators gets published, jobless claim in the USA. The average in recent months has been around 220k (4-week average). The expectation post Covid figures is around 1 million jobless and it actually could be higher.
All these figures that will inevitably be very negative in the future will undoubtedly weigh on the market and will slow down its recovery, say market analysts.
The US Dollar weakened yesterday, as we can see in the DollarIndex chart, partly due to the closing of long positions of Dollars as safe haven currency but above all due to the relief of financial tensions that raised the cost of financing this currency in short-term swaps.
The safe-haven status of the US Dollar
The difference in interest rates between currencies is the market driver in the currency markets, but with the general rate cut, the Dollar will lose the premium it had until a few days ago.
The variable that will affect the exchange rate in the coming weeks or months will be the level of risk appetite and this in turn will depend on the economic figures that are published.
In this sense, the Dollar can return to its safe haven status; together with the fact that the demand for Dollars by emerging countries in trouble due to the collapse of commodities will remain high. In fact, a well-known investment bank has pointed out the possibility of intervention in the market in the event that the strengthening of the Dollar is extended.
With the change in market sentiment to risk-on, the currency pairs that have risen the most are the crosses of the Yen, such as GBP/JPY and CAD/JPY, which appreciated 2% to a significant level of resistance around at 78.40.
This move is a technical correction in a bearish trend that’s still in force.
The Canadian Dollar
The Canadian Dollar is a currency directly linked to commodities, mainly Crude Oil and despite the fact that yesterday BrentOil lost 0.50% to $ 27.20, the Canadian Dollar strengthened. This is why the movement is a mere technical correction due to oversold conditions say most analysts in the market.
The figures of Canada employment already published showed an enormous deterioration with almost 1 million jobless claims, the greatest destruction of employment after World War II and. On the other hand, the price of Crude Oil will not recover substantially in the medium term due to the enormous inventories growth and the deterioration in global demand so the general market sentiment is that the Canadian Dollar will continue to be under pressure.
By: Miguel A. Rodriguez Ruiz
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