World Central Bank’s emergency measures and the decision to open up oil reserves in US can push markets up
The three-week collapse in global stock indexes may stop this week, and perhaps even stop altogether in the wake of unprecedented measures aimed at saving the US financial market from Fed’s further chaotic behavior and D. Trump’s more decisive actions.
After the Federal reserve decided to cut interest rates by 0.50% last week for fear of severe consequences for the national economy under the influence of the coronavirus, which caused the opposite effect – increased panic in the markets, investors expect another significant decrease in interest rates at the March regular meeting of the Central Bank, which is clearly demonstrated by the dynamics of futures on rates on federal funds. Moreover, the market began to believe that the American regulator would increase incentive measures to $ 100 billion a month in order to develop market sentiment. And in the future, he may even cut the level of interest rates to zero. In addition to these expectations, the U.S. Department of Energy has decided to support the sale of crude oil from a strategic reserve to support crude oil prices.
This news led to a sharp increase in quotes of “black gold” in the Asian trading session, which at the time of writing, are increasing by more than 7%. Positive news, as well as market expectations led to a strong increase in futures for major US stock indexes, which add up to more than 3% at the moment.
Please note that all significant futures for European stock indexes are also rising against the background of the rise of Asian stock indexes. Given the sharp change in market sentiment, we believe that we will see a marked increase in demand for risky assets on Tuesday. This probability is also confirmed by the strongest increase in the yield of American treasuries. Thus, the benchmark yield of 10-year bonds rose up by 36.29% to 0.679% at the moment.
The currency market is also experiencing a sharp change in sentiment. The US dollar is growing against the euro, pound, yen and the Swiss franc, which is logical since before that, it declined significantly to these currencies in the wake of investors avoiding risk. Gold also remains under pressure after reaching a local maximum of $ 1,700 per ounce.
It can be noted that a rebound will indeed be observed today. But the question arises: will it turn into a trend change, becoming a start for a return of prices or not?
It’s hard to say so far. A lot will depend on the reaction of large market players who provoked this collapse in the markets. If they decide that the fall has reached its “bottom” and that it is now worth buying assets that have already fallen in price in the wake of expecting significant support for the national economies from the Central Bank, then we will witness not just a rebound, but a real reversal in the markets.
Forecast of the day:
The EUR/USD pair is correcting down after reaching the level of 1.1500. We believe that positive sentiment in the markets will force it to adjust downward. We believe it is possible to sell the pair since it is already below the level of 1.1370 with the target of 1.1100.
The USD/JPY pair is also recovering after declining below the level of 102.00 yen per dollar. We believe that it can be bought after breaking through the level of 105.00 with a likely price increase to the level of 107.75.
The material has been provided by InstaForex Company – www.instaforex.com