USD falls, stocks rise as Fed launched further stimulus
US futures spent the better part of today in the red as investors panicked about the risks posed by Coronavirus. This changed shortly after the Federal Reserve intervened with more stimulus. In a statement, the bank said it was committed to unlimited purchases of US treasuries and mortgage-backed securities. It also announced that it was setting up tools to boost companies that were struggling in the financial market. This was the third emergency decision by the Fed this month. It came after talks between Democrats and Republicans on passing a $2 trillion stimulus package. In response to the news, futures tied to the Dow and S&P rose by 400 and 51 points respectively.
The sterling wobbled as the UK braced itself for a big Italian-style national lockdown as Coronavirus cases surged. In a statement yesterday, Boris Johnson said that he could call for a lockdown if people continued to congregate. An Italian-style lockdown would have a significant impact on the UK, which was struggling even before the current Covid-19 crisis. Meanwhile, the government is planning to pay salaries for 80% of employees as more companies remain closed. Big manufacturers like Toyota and Honda have shut their factories while retailers like McDonald's will shut their stores today.
The US dollar index declined sharply after the latest action by the Federal Reserve. The currency declined against key currencies like the euro and Japanese yen. The dollar has been a key beneficiary of the ongoing rout in the market as investors rush to its safety. Meanwhile, the Swiss National bank (SNB) hiked its foreign currency intervention to the highest level since 2016 when the UK voted for Brexit. The bank has allocated more than $711 million worth of dollars in the current interventions. This happened as the bank said it was ready to support the economy with increased liquidity.
The EUR/USD pair rose to an intraday high of 1.0800 after the decision by the Fed to shore up the markets. On the hourly chart, the pair had just formed a double bottom at the 1.0636 level. The current price is slightly above the resistance level shown in pink. The price is also slightly above the 25-day exponential moving average while the RSI has continued to rise. The pair may resume declining as traders digest the latest news from the Fed.
The S&P500 index rose to an intraday high of 2387.5, which is the highest it has been since Thursday last week. The RSI has moved upwards while the on-balance volume has continued to fall. Meanwhile, the price is slightly above the 14-day and 28-day exponential moving averages. The index may continue rising as traders digest positive news from the US.
The XAU/USD pair rose to an intraday high of 1,522.93 after the latest action by the Fed. The pair rose after it had formed a double bottom pattern at 1,463.20 last week. The dots of the Parabolic SAR are below the current level while the price is along the upper line of the Bollinger Bands. The RSI has moved to the overbought level of 70. The pair may continue rising during the American session.