RedFX Update: US gives UNLIMITED stimulus, Germany confirms recession imminent

Yesterday was yet another tumultuous day in global markets. Incredibly, the EURO did not initially react to news that European governments endorsed the ruling that EU budget rules will be suspended.

This morning’s German and French Preliminary PMI data will be the first indication of how the Eurozone is reacting. FXStreet comments suggest that a reading below 35 will bring back dark memories of 2008, and could lead to a huge EURO sell-off, sending the single currency much lower.

With Germany’s Bundesbank announcing that recession is inevitable, should we be expecting more headlines / announcements like this? I suspect so. The Bundesbank’s monthly report said:

"The slide into a pronounced recession cannot be prevented," the publication read, per Reuters. However, the bank further noted that German public finances were well-positioned to handle this situation.

EUR/USD was already on the back-foot due to recent USD strength, traded down from 1.0830 to close at 1.0725 (37month lows). The huge spending plan announced by the US should, under normal circumstances, weaken the USD – however, we all know these are not ‘normal times’ – the USD did retreat, but against the major currencies, the effect was small, as shown by these headlines yesterday:

• GBP/USD is trading off the 1985 lows near the 1.1500 level.

• The Fed announces unlimited Quantitative Easing (QE). 

GBP/USD Technical Analysis below shows key levels to what (FXStreet):
GBP/USD is nearing the 1.1400 figure near last week’s lows as the bearish pressure remains unabated on the cable. A break below the above-mentioned level should lead to further losses towards the 1.1200 and 1.1000 levels. Resistance can be expected near the 1.1590, 1.1750 and 1.1900 levels on the way up, although bullish attempts are expected to be short-lived in this context.

GBP/EUR: At levels under 1.0700 as we closed yesterday, GBP looks under real pressure across the board. We are seeing clients lock in rates to sell EUR and buy GBP here. More importantly, we are seeing clients develop sensible strategies for EURO purchases if / when the pound recovers.

One interesting headline that we will all have read, because of the lack of any other subject matter, was the traffic jams across Europe. The EU has stepped in – although it is powerless to enforce anything material, the EU has URGED its 27 members to unblock borders and allow freight to cross within 15minutes (Reuters quote): 

European Commission President Ursula von der Leyen said in a video statement that measures introduced to slow the spread of the coronavirus had also slowed and sometimes paralyzed transport, causing delays and risking shortages.
“This weekend we had some crossing points with more than 40 kilometres of queues. This is a waiting time of up to 18 hours. This has to stop,” she said.
Road transport, which accounts for 75% of freight shipments within the EU, has been particularly hit, notably at the Polish-German frontier after Warsaw’s decision to shut its borders to non-Poles, leaving Latvians, Lithuanians and Estonians unable to return home.

These numbers are horrific, along with the deluge of bad numbers globally, which stretch from on-the-ground data like this, to the unimaginable sums of USD the US is about to spend.

More details to come, please call or email for all your FX needs.