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27.03.2020 11:44 AM
EUR/USD. Euro's victory: dollar's comeback is just around the corner

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The S&P 500, inspired by large-scale monetary measures by the Fed and fiscal incentives from the White House, soared 20% from the March bottom, pushing up EUR/USD. After the break through of the resistance level at 1.084, the main currency pair rose by 2.5 figures. The bears of the euro are full of optimism, which is seriously counting on the fact that the fashion of the dollar as the main currency of refuge has remained in the past, but isn't it too early?

In anticipation of the publication of data on applications for unemployment benefits in the United States in March, there were fears that weak statistics would discourage investors from buying shares. However, the reaction of the US stock market to an increase to a historic high of 3.28 million demonstrated that this did not stop the bulls.

Moreover, the growth of US stock indices was not the only reason for the EUR / USD rally.

A large-scale monetary stimulus from the Federal Reserve led to the fact that the balance of the American Central Bank exceeded $ 5 trillion for the first time in its history. Over the week of March 25, the indicator expanded by $ 586 million, to $ 5,250 billion. In the post-crisis times of 2009-2011, the outstripping dynamics of the American indicator over the European one acted as a powerful impulse of the growth of the main currency pair.

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At the same time, support for the single European currency was also provided by the ECB's decision to change the rules. Previously, in the framework of QE, the regulator was not supposed to buy more than 33% of the total debt of the issuing state, but in the context of the coronavirus epidemic, it became possible to use a selective approach. The eurozone countries that are the most affected by the epidemic are forced to untie money bags, and if the cost of servicing their obligations is not reduced, the probability of a new debt crisis in the region will increase. Therefore, the decision of the ECB chairman Christine Lagarde and her colleagues favorably affected the yield of Old World bonds and became another trump card in the hands of the bulls on EUR / USD.

The ECB's agreement with the Fed on the mutual exchange of payment flows, cheap liquidity from the European regulator, as well as a decrease in demand for the dollar as the main safe haven asset contributed to the growth of three-month cross-currency swaps in EUR / USD to record highs. Interest in the euro in terms of excess liquidity from the Fed turned out to be stronger than in the dollar. Therefore, do not be surprised at the rise of the main currency pair above the level of 1.10.

Meanwhile, the United States becoming a leader in the number of coronavirus infected people may make investors doubt that the current crisis is painful, but not for long. Therefore, it is likely that the EUR / USD pair will soon begin to show consolidation from current levels. In addition, the economic damage caused by the Eurozone coronavirus can turn out to be much more serious than in other regions.

The USD index declined five consecutive days after it strengthened for seven of the eight previous days (a total of 8.5%). Perhaps, the dollar has come to think about returning to the market. The dollar has already adjusted his previous move by 2.3% and this suggests that profit taking should slow down. Given how aggressive the collapse of the longest bull market in history has ended, the dollar will quickly regain the status of an asset in a safe haven in the event of a renewed fall in stock indices.

Viktor Isakov,
Pakar analisis InstaForex
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