Euro falls as ECB leaves rates unchanged and increases QE
Global stocks and US futures declined today as traders reacted to the address by Donald Trump. In an address in the Oval Office, the president said that the US would ban flights from the European Union for 30 days. The measure has been criticized by investors and policymakers because it will not help the situation. It will also post existential threats to the already-struggling airlines who depend mostly on Transatlantic trips. Instead, experts believe that widespread testing is the best way to fight the disease, which has no cure. The US has tested just 6k people because of lack of kits. In Europe, the major indices declined by more than 5% while in Asia, the main indices declined by more than 1%. In the US, futures tied to the Dow and the S&P500 declined by more than 5% and 4% respectively.
The price of crude oil declined by more than 5% today as the market reacted to the decision by Trump to ban EU flights. The oil market is battling a situation of high supplies and low demand. The high supply is because of last week’s decision by Saudi Arabia and Russia to start a market share war. This happened after Russia rejected OPEC’s request to cut more supplies. In response, Saudi Arabia said that it would pump more than 12.3 million barrels per day in April, up from the current 9 million. Russia, on its part, said that it would pump between 300k and 500k more oil in April. The world is expected to see low demand of oil as more people stay at home and as airlines cancel trips.
The euro declined against the USD before and after the ECB monetary policy decision. As was expected, the bank left interest rates unchanged. The bank, led by Christine Lagarde, said that it would effectively pay commercial banks to lend to their customers. The decision is meant to spur the private sector, which is going through a difficult time because of coronavirus and Brexit. Additionally, the bank said that it would buy an additional $135 billion of government and corporate bonds every month. These purchases are meant to increase demand, drive down market interest rates, and make the cost of borrowing cheaper. On this, the statement said:
A temporary envelope of additional net asset purchases of €120 billion will be added until the end of the year, ensuring a strong contribution from the private sector purchase programs. In combination with the existing asset purchase program (APP), this will support favourable financing conditions for the real economy in times of heightened uncertainty.
The XTI/USD pair declined by more than 6% after Trump banned flights from the EU. The pair dropped to an intraday low of 31.40, which is lower than yesterday’s high of 36.60. The price is slightly below the 28-day and 14-day exponential moving averages while the RSI has declined from 57 to 37. The price appears to have failed to fill the gap that was created on Monday. This means that the pair may move lower to retest this week’s low of 27.42.
The GBP/USD pair declined to an intraday low of 1.2650, which is the lowest it has been since October 16 last year. The price is along the lower line of the Bollinger Bands and is below the short and medium-term moving averages. The RSI has moved from the overbought level of 70 to the current level of 32. The pair may continue moving lower during the American session.
The EUR/USD pair declined by 60 basis points today as traders reacted to the ECB decision. The pair is trading at 1.1196, which is slightly below this week’s high of 1.1496. The price is slightly below the 28-day and 14-day exponential moving averages. The price is also along the 61.8% Fibonacci Retracement level on the four-hour chart. The pair may continue moving lower to test the 50% Fibonacci level of 1.1140.