Central banks in coordinated actions VS Coronavirus. How the Wall Street and the FX market reacts so far!?
The previous weeks were really something in the market, right. Coronavirus disrupt evertyhing and the market volatility went crazy. Intraday moves reached 800 or even a 1000 pips in one direction, mostly back as well in a same day. But, there is more to come for sure, so stay alert on all actions from the central banks, who coordinatelly trying everything to ensure some kind of the stability.
That’s how the FED cut interest rates to essentially zero on Sunday March 15. and launched a massive $700 billion quantitative easing program to shelter the economy from the effects of the virus. The new fed funds rate, used as a benchmark both for short-term lending for financial institutions and as a peg to many consumer rates, will now be targeted at 0% to 0.25% down from a previous target range of 1% to 1.25%. Facing highly disrupted financial markets, the Fed also slashed the rate of emergency lending at the discount window for banks by 125 basis points to 0.25%, and lengthened the term of loans to 90 days. Looks like panic? Well, it obviously is.
In addition, in a global coordinated move the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank took action to enhance dollar liquidity around the world through existing dollar swap arrangements. The banks lowered the rate on these swap line loans and extended the period for such loans. The actions by the Fed appeared to be the largest single day set of moves the bank had ever taken, mirroring in many ways its efforts during the financial crisis that were rolled out over several months. Sunday’s March 15. move includes multiple programs, rate cuts and QE, but all in a single day.
Despite all the coordinated moves from the central banks the stock market reaction was negative in the previous week and all their effort didn’t stop the panic so far. FX market on the other hand continued with the wild up/down moves in which is not easy to find the path. Opportunity? Yes it is, but if you have a clear plan to take a part of the move and close the book. If you wait to long in the position or want to take it all, you will find yourself in huge trouble. Sure, emotions must be excluded in total. Does TA works? In my point of view, yes, but with much bigger ‘fail breaks’ then usual true the SR trend lines. In my point of view, experience and feeling in such a days plays the biggest role. Be very careful, because today the central banks have continued with their actions.
Coordinated central bank action to further enhance the provision of U.S. dollar liquidity
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to further enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.
To improve the swap lines’ effectiveness in providing U.S. dollar funding, these central banks have agreed to increase the frequency of 7-day maturity operations from weekly to daily. These daily operations will commence on Monday, March 23, 2020, and will continue at least through the end of April. The central banks also will continue to hold weekly 84-day maturity operations.
The swap lines among these central banks are available standing facilities and serve as an important liquidity backstop to ease strains in global funding markets, thereby helping to mitigate the effects of such strains on the supply of credit to households and businesses, both domestically and abroad.
I was away for a while busy with some private obligations, but I am back starting today and will keep you posted with some amaizing analysis and views for sure furder on. 😉
Let’s trade and make some money!