A noticeable growth of the US dollar will occur in the first half of the week if OPEC does not solve the problem of regulating oil prices. From April 1, cartel members will no longer be bound by any restrictions on production. Therefore, any increase in supply will sharply bring down markets, leaving investors without alternatives to dollar investment.
A possible option is the weakening of the American dollar, launched by traders last week. It can be continued in the middle of next week due to the active work of the “printing press” of the Fed. Huge amounts of US currency are pumped into the markets through QE programs and direct payments to the population from the White House.
Another negative factor for the dollar is the suspension of production against the backdrop of the growing number of coronavirus cases in the country, the number of which exceeded the number of sick Chinese citizens. The US president is trying to prevent isolation, as a reassessment of the threat of a pandemic could trigger investors to exit dollar assets.
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The British pound, which broke all records of volatility and depreciation in the last two weeks, spent the last two trading days in correction. But it seems that the correction has already been completed, and the downtrend for the GBPUSD pair may resume from the very beginning of the coming week. Unfortunately for the British pound, the fundamental and macroeconomic background now plays no role. In the markets, panic caused by a drop in oil and coronavirus. Unfortunately, it is impossible to control and very difficult to influence. Moreover, oil prices continue to fall, US stock indices – to decline. The only good thing about this is that commodities and stock markets cannot fall all the same. Oil cannot be long below cost levels. Even if the cost of production exceeds the market price, sooner or later the volume of production will decrease, since it will simply be unprofitable to mine. And this applies not only to expensive American shale oil, but also to cheaper grades in production. However, there is another side to the coin. Shale oil producers may go bankrupt or ask for help from the state. And the state is the United States, led by Donald Trump, he loves to conflict and fight. Considering that now, in the general opinion, Saudi Arabia is to blame for what is happening, which decided to oust competitors from the market by dumping prices, we can expect a new conflict in the Middle East, new sanctions, and new trials at the international level. Unfortunately, all these actions can only aggravate the situation in which the whole world finds itself. We believe that it is possible to get out with the least losses from the current situation only by cooperating the efforts of all countries. However, this method of solution in higher political circles is not popular. From a technical point of view, the GBPUSD pair has corrected and can now resume the downward movement. You can continue to trade when it goes down. However, due to the high uncertainty in fundamental factors, it is recommended to be extremely careful with the opening of any positions.
Last week showed that traders ignored the ECB rate retention, returning to dollar purchases, despite the Fed rate cut.
The American currency again becomes the main one for investors and the upcoming five-day period is able to continue this trend.
The growth of major currencies is unlikely, it can begin only under the influence of the following factors: the price of oil, data on deaths and morbidity of coronavirus and the actual size of assistance to the end consumer. Last – especially important, coronavirus threatens small business, which provides the main employment of the population. Liquidity allocated by banks and soft loans do not reach small enterprises. The EU and the US have promised targeted assistance to both employers and forced quarantine workers. Only received grants can stop the fall of stock indices and strengthen national currencies.
The number of deaths from COVID-19 exceeded the 5,000th mark, and the total number of infected reached 137,000. Both indicators are growing daily, reflecting the spread of the epidemic around the world. At the same time, in China the epidemic began to decline – over the past day there were registered only 11 new cases. But, perhaps, this is the only more or less good news, because in the rest of the world everything is just beginning.
The officially recognized Covid-19 pandemic continues to adjust the political agenda of the week. Important negotiations between Great Britain and the European Union were canceled, European Commission contacts were limited, the Canadian Prime Minister was quarantined, activities related to the US presidential race were stopped.
An “empty” political calendar deprives the Forex currency market of a number of fundamental drivers, giving more weight to economic news. The focus of next week is decisions on the Fed rate and BoJ, as well as the actions of OPEC countries.
The price of oil has already become one of the reasons for the collapse of stock markets and the growth of the dollar, the disruption of negotiations on March 18 may strengthen this trend. On the same day, he will come up with a decision on the Fed interest rate, analysts are confident in its reduction.
The softening of monetary policy may lead to an unexpected effect – the strengthening of the dollar. Traders could play a softening policy in the two-week March rally of the euro.