GBP/USD: dollar retreated, but promised to return

On the last trading day of the week, the dollar retreats on all fronts: dollar bulls could not hold their positions at yesterday's levels. The market needed a correction, but the fundamental background throughout the week fueled the excitement around the US currency. Dollar bulls have loosened their grip today – the greenback has become cheaper in almost all pairs.

All dollar pairs show a correction today, but it is most pronounced in the pound-dollar pair. The British currency this month showed record volatility – in just a week and a half, it walked down more than one and a half thousand points, falling from the 31st figure to today's low of 1.1414. Today, the GBP/USD pair also sets certain records – after updating the multi-year price low, the pair jumped almost 500 points up, taking advantage of the weakness of the dollar.

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However, the dollar's weakness is not the only reason for such a powerful correction. Yesterday's actions of the Bank of England gave traders hope that the British economy will be able to wait out the troubled times. Let me remind you that the British regulator lowered the discount rate to 0.1% per annum (which is the lowest level in history) and launched the printing press, expanding the asset purchase program to 645 billion pounds. On the eve of a similar program launched by the European Central Bank: the regulator will buy government and corporate bonds on the market worth 750 billion euros until the end of this year (possibly further). This program will complement the purchase of 20 billion euros per month, which the central bank has been conducting since September last year. Also today, it was reported that the German authorities have agreed on an additional budget of 150 billion euros – this money should help the country's economy cope with the consequences of the spread of the coronavirus.

This large-scale pumping of financial systems with liquidity slightly calmed the markets. The dollar has ceased to enjoy such crazy demand, and this fact made it possible for the GBP/USD bulls to seize the initiative for the pair.

In addition, the US currency itself was under pressure today. As you know, yesterday the Governor of California ordered the introduction of a strict quarantine for all residents of the state – because of a sharp increase in the number of patients. Yesterday was a record day for the country in the context of the spread of the coronavirus – if the number of infected reached the 10-thousand mark in the daytime, then at midnight this figure exceeded the 14-thousand level. Covid-19 was designated in all states of the country.

Now 40 million people in California will have to stay at home, fulfilling the requirements of the quarantine regime. This is the first such strict restriction that was imposed statewide by the Governor's order. It took effect last night and will remain in effect "until further notice." The quarantine also affected the manufacturing sector – for example, Tesla announced that it was suspending production from March 23, not only in California, but also at the plant in Buffalo, which is located in New York. In addition to Tesla, production on the American continent is also suspended by General Motors, Ford and Fiat Chrysler. In addition, the United States has finally lowered the iron curtain – from today, the United States stops providing standard visa services in all embassies and consulates of the country. The border with Canada and Mexico is also completely closed.

A sharp surge in the incidence of Covid-19 in the United States worried dollar bulls. The strict quarantine in California only intensified this concern - after all, if similar measures are introduced in other states of the country, this could significantly affect the country's economy (even taking into account state support). All these reflections on the last trading day of the week, apparently, led to massive profit taking - traders do not risk leaving open positions for the weekend.

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It is also worth noting that the key Wall Street indices opened today in positive territory, although further growth attempts look very uncertain. Nevertheless, after the opening of trading, the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite indices added 0.8% –1% each.

Thus, today the dollar has come under certain pressure: a sharp surge in the incidence in the United States, strict quarantine in California and the notorious Friday factor made it possible for the GBP/USD pair and many other dollar pairs to go into correction. At the same time, standing up against the US currency is now extremely dangerous - all of the above factors can have a short-term impact, while investors still consider the greenback as the main defensive asset. Therefore, long positions on the GBP/USD pair are risky, but it is advisable to open sales on Monday, evaluating the impact of those events that will occur on the weekend.

The material has been provided by InstaForex Company - www.instaforex.com

Oil #CL, price war. Saudi Arabia vs Russia. Round One: 1-0

The fight has already begun and Saudi Arabia had won the first round. We will discuss the oil market and its prospects.

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It is obvious that Saudi Arabia has chosen a blitzkrieg tactic, accompanied by powerful information. First, SA announced an increase in oil production to 12.3 million barrels per day, and second, it began offering a significant discount to European buyers, seeking to use its reserves to oust Russia from this market.

The moment, I must say, the Saudis chose quite well. Europe has become the epicenter of the coronavirus, and fuel consumption on the continent has fallen significantly. This brought down the price of oil, and Russian oil in Europe became impossible to sell. According to Reuters, oil traders were unable to sell oil in Europe, despite the offered discount:

* Trafigura offered to load Urals from Primorsk or Ust-Luga on March 30-April 3 at the price of Brent -$3.35 per barrel, but could not find a buyer.

* Glencore offered to ship 100 thousand tons of Urals from the Baltic ports on April 4-8 at the price of Brent -$3.70 per barrel.

* Glencore also offered to load the cargo on March 27-31 at the price of Brent -$ 3.80 per barrel, but could not find a buyer.* Shell offered 100 thousand tons of Urals ex-Baltic ports on March 31-April 4 at the price of Brent -$3.25 per barrel, but no one was interested.

* Total offered Urals-cargo for loading on March 28-April 1 at the price of Brent -$3.30 per barrel, but was also unable to find a buyer.

* Trading house Glencore has chartered the 3-million-barrel oil carrier Europa to store oil at sea for at least 6 months, trade sources said on Tuesday.

As a result of falling demand and discounts offered, oil fell to the lowest levels in 2002. North American grade WTI #CL in the April contract fell to the level of $20, North sea grade Brent in the may contract fell to the level of $24.50.

Thus, it is safe to say that Saudi Arabia has won the first round of confrontation in the oil price war. The actions of the gas station country scared even American congressmen - Republicans, who wrote a letter to the king asking him to stop destroying the American oil industry.

However, a battle won is not a war won. In order to win the war, Saudi Arabia must keep prices low for a long time. Initial analysis shows that shale producers are insured against price cuts for 3-6 months. We can assume that Russian producers are also insured for this depth, and the Saudis themselves probably hedged their risks. Thus, the price should be kept at the current values for at least a year, preferably two. Perhaps during this period, the demand for oil will be really low, which will help the Saudis to keep dumping, but will they be able to keep oil prices low themselves? This is a big question that the US Energy Information Agency (US EIA) is trying to answer.

Let's use this information and look at the prospects for oil production by OPEC countries. As follows from the data published by the Agency in the short-term forecast for March 2020, made after the beginning of the confrontation between Saudi Arabia and Russia, in February the cartel countries produced 28.5 million barrels per day, and in December 2020 their oil production will be 29.4 million barrels, an increase of just 0.9 million barrels. The problem with the Saudis is that their increase in production is compensated by interruptions in supplies in other countries. And SA's ability to significantly increase production, while reducing Saudi Aramco's capital expenditures, also raises big questions for many analysts.

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Rice.1: Balance of supply and demand in the oil market in 2020 and 2021

Shale producers will not reduce their production this year either. According to the US EIA, US oil production in December 2020 will be 12.99 million barrels per day against 12.23 million barrels in 2019. At the same time, according to analysts of the agency, the price of oil in the second half of the year will begin to grow and the average for Brent will be $43 per barrel. World oil production will be at the level of 102.1 million barrels per day, while consumption will be at the level of 101.1 million barrels (Fig.1), which will cause a surplus in the oil market. In turn, the surplus will lead to an increase in inventory.

At the same time, the COVID-19 coronavirus pandemic may make its own adjustments and lead to a deeper drop in oil consumption and price. In any case, Saudi Arabia needs to prepare for a long standoff, and it is still unclear whether it will be able to maintain current production levels at high values, especially since it is now simply selling off its reserves and actively bluffing in the information field.

At the same time, Saudi Arabia and the United States can agree on joint actions against Russia. The US is already taking steps to close the world market for Russian oil through the introduction of various sanctions. This was problematic in the context of a shortage of oil, but in an environment where the markets are under pressure from a surplus, removing Russian oil may be a compromise option acceptable to both sides. Therefore, it is highly probable that this is the case. At the same time, the main factor affecting oil and other markets is the COVID-19 coronavirus pandemic, which caused a sharp drop in demand for fuel. To paraphrase a well-known saying - God created all countries different, but the coronavirus equalized their chances.

The material has been provided by InstaForex Company - www.instaforex.com