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Stronger EURUSD is a Good Sign for the Markets

World central banks continue to pump liquidity in the financial system to lessen the negative impact on business from strict isolation measures across the globe.
Alexander Kuptsikevich

The latest example was the People’s Bank of China, which on Monday announced a 20 basis point cut, while RBNZ said it would accept corporate bonds as collateral for loans.

The actions of the world’s central banks are holding back the rollback of financial markets, which have moved uncertainly into the green zone since the opening of trading on Monday. As in the past, we believe we should be cautious about spikes in market optimism as long as the coronavirus outbreak continues to accelerate.

On the positive side, there are some signs of stabilization of the daily growth of new infection cases. This allows us to make cautious predictions that current quarantine measures in Europe and the United States won’t be tightened further. But still, it is too early to talk about their removal – for this to happen, the number of new infections must shift to a steady decline.

With the authorities of all countries pushing the monetary easing pedal to the floor, it becomes even more difficult for traders in the currency market to identify trends. The last such example in modern history was in 2008/2009. As a result, we can conclude that currencies will be extremely volatile, feverishly fluctuating from growth to decline at record rates.

We saw it at the end of 2008 when EURUSD declined from 1.45 to 1.23 in 5 weeks. It took about the same time to bounce back, but then there was another 10-week decline in the area of 1.25. Subsequently, the pair returned to growth shortly before the upward reversal in the markets. If EURUSD is an equally reliable indicator for the markets this time, then we can expect with some caution the repeal of the situation towards improvement.

Right now, at the start of trading at the beginning of the week, we are witnessing EURUSD rollback by 0.6% to 1.1070 from 1.1140. At the same time, the movement towards the dollar may be due to the end of the quarter dollar demands. Thus, have a short term impact on markets. An important signal for traders is last week’s closing EURUSD above the 200-day average, which often precedes a significant increase in pair purchases in the coming days and may also serve as a harbinger of a global trend reversal in the pair for growth.

by Alex Kuptsikevich, the FxPro senior market analyst. 

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