The Fed’s dramatic move on Tuesday could be followed up by other central bank interventions, writes Joe Perry.
Traders were hoping for some kind of global stimulus earlier today to help stem the global slowdown currently from the effects of the Coronavirus. Instead, all they got was a statement that said fiscal stimulus was ready if needed.
However, in a shocking twist of events, the U.S. Federal Reserve cut its Fed Funds rate 50 basis points in an emergency move to help promote growth in the economy. In Powell’s press conference he said fundamentals remain strong, however the Coronavirus and measures taken to contain it will take a toll on the economy. As such, the Fed is doing their part in support of the economy. He said the labor markets remain strong, however he also mentioned concerns about consumer spending.
As a result, the U.S. Dollar Index dropped sharply and many of their counter-currencies have gone bid (see chart).
Source: Tradingvewi, FOREX.com
As we have seen since Feb. 20 when the U.S. dollar (DXY) reached its target for the descending wedge near 100, price has moved lower over the last eight days to Tuesday’s low of 96.98. The next important support level for the DXY is the top trendline of the falling wedge near 96.75. Below that support is at the end of December lows near 96.36. First resistance is at Tuesday’s highs near 97.70, then the 200-day moving average at 97.82 (see chart).
Source: Tradingvewi, FOREX.com
The one thing traders need to be aware of is that Fed Chair Powell also indicated that the Fed is in constant contact with other central banks. One needs to watch for additional global stimulus from other central banks. The Reserve Bank of Australia cut earlier at their scheduled meeting. The Bank of Canada is scheduled to meet Wednesday. Inter-meeting stimulus may follow from other countries to help their own economies during this “temporary” slowdown. The situation is obviously very fluid as more information is available to governments. Expect more volatility this week!
Joe Perry holds the Chartered Market Technician (CMT) designation and has 20 years of experience in the FX and commodities arenas. Perry uses a combination of technical, macro, and fundamental analysis to provide market insights. He traded spot market FX and commodity futures for 17 years at SAC Capital Advisors and Point 72 Asset Management.
