This week’s headlines were filled with news surrounding the coronavirus pandemic. We could see more variety in the week ahead especially with three major central bank announcements due.
After the Federal Reserve cut rates last week by 50-basis points, markets are expecting another round of rate cuts. Market participants began speculating about this after US President Donald Trump’s proposals for fiscal stimulus were left hanging by the Congress and Treasury. In a press conference this week, he called for Congress to increase funding to small businesses by 5 billion and to suspend around $20 billion-worth of taxes.
Now the question is, by how much will the FOMC cut?
On the daily time frame, it can be seen that USDX has pared most of its losses back to the 61.8% Fib level (when you draw from the high of February 20 to the low of March 9). This price, around 97.80, also coincides with both the 100 SMA and 200 SMA. Reversal candlesticks around this area could mean that USDX may soon fall to its recent lows at 94.60. On the other hand, a strong close above this week’s highs at 98.31 may hint that there are enough buyers in the market to possibly push USDX up to its February highs at 99.88.
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Earlier this week, I reported that the BOJ injected more liquidity into the economy. This was in an effort to stabilize stocks as the Nikkei 225 incurred massive losses during the week. In fact, the stock index even breached the critical 19,500.00 level which the BOJ has said as the rough cost of its ETF purchases.
On Thursday, the central bank is widely expected to ease monetary policy. However, investors are unsure how to go about it because rates in Japan are already negative. On top of that, the BOJ’s asset purchase program is already facing criticism at 6 trillion yen per year.
The daily time frame shows that EURJPY found support at last September’s lows around 116.15. Buyers have pushed price more than 300 pips higher above 118.00. However, gains on the currency could be limited to around 120.15. This price offers a confluence of resistance with the 100 SMA as well as the falling trend line (when you connect the highs of January 16, February 21, and March 3).
On the other hand, if EURJPY gets rejected at its previous support at 118.50, we could see it retest its recent lows.
The SNB and the Swiss franc do not get a lot of attention from market participants. This can be attributed to the fact that, with the SNB’s rates being the lowest among the major central banks at -0.75%, there’s not much room for policymakers to maneuver. However, this week’s interest rate decision will be particularly important because EURCHF is trading at its 2015 lows!
If there’s anything you need to know about the SNB, it is that they do not like seeing excessive strength on the Swiss franc. This is because a strong franc makes Swiss imports relatively more expensive. (Foreigners would need more of their local currency to purchase Swiss products.) The central bank has been known to intervene in the markets. It even set a peg on EURCHF at 1.2000 from 2011 to 2015. During this time, the central bank itself sold Swiss francs every time the currency pair hit 1.2000.
With the coronavirus pandemic ushering safe haven flows back into the franc, is it time for the SNB to intervene again?
EURCHF has been on a steady downtrend since December 2019. Now, the currency pair is trading at its lowest level in almost five years around 1.0550. If sellers can maintain their momentum, the next support level could be at 1.0256 where EURJPY bottomed on May 2015. On the other hand, if the SNB can manage to weaken the franc, it could trade higher to test its previous lows at 1.0813.