The Fed's unexpected decision to expand measures to support the national economy before the threat of a wider and prolonged recession has blown optimism again into the sails of optimism of risky assets and highly profitable currencies.
The Fed said it will begin to buy corporate debt under the previously announced incentive scheme by launching the Main Street program, which means lending to a business by purchasing corporate bonds. This news unfolded market sentiment and shifted the focus from the subject of probability of the second wave of the coronavirus pandemic to a new opportunity to continue the June rally.
The news from D. Trump, who announced on Tuesday that he was preparing a proposal for infrastructure projects (construction of roads, bridges, etc.) for $ 1 trillion also added positivity. This is generally an unprecedented event. It seems that the president decided to follow the path of F. D. Roosevelt, who implemented an employment program in the 30s of the twentieth century after the awful financial crisis of 1929 with the implementation of infrastructure projects, which allowed the States to break out of the most difficult crisis problems.
These two news led to an increase in demand for risky assets and a noticeable weakening of the US currency. The ICE dollar index declined, turning around in the wake of a wide wave of optimism.
Given the widespread incentive measures, the US dollar exchange rate is expected to remain unchanged in the future. We believe that the most powerful dollar offer in the US financial system will lead to its depreciation against major currencies in the future. This will happen despite the Fed's reluctance to cut interest rates to negative values. The strongest support in pairs with the dollar will receive commodity and commodity currencies. The euro and pound will also face the fact of promising growth, despite their own economic support programs, which, however, are noticeably inferior to the US. At the same time, the Japanese yen and the franc are likely to remain under pressure on the general wave of widespread demand for risk.
On Tuesday, investors closely watched the speech of J. Powell on the Senate Banking Committee. The details were expected from him on the announced new incentive measures. He, as expected, confirmed the course towards the implementation of the corporate bond purchase program. But, besides this, he was generally pessimistic again about the rapid growth of the US economy, which led to profit taking in the stock markets and a limited recovery in the dollar, which, however, stopped following the restoration of purchases of risky assets.
Forecast of the day:
The AUD/USD pair is likely to consolidate in the side range 0.6800 - 0.7025 in the wake of some worsening situation with coronavirus in China and positive expectations from the new Fed stimulus measures. We consider buying a pair from the lower boundary of this range.
The USD/JPY pair is also consolidating in the range of 106.65-107.65. The lack of a strict focus on the market has a direct impact on the dynamics of the pair. We believe that this picture will continue today. Purchases from the support line 106.65 is considered.
