EUR/USD Surges Higher As Fed Announced Unprecedented Limitless Asset Purchase

EUR/USD Surges Higher As Fed Announced Unprecedented Limitless Asset Purchase
  • Fed announced new measures, including the unprecedented limitless asset purchase
  • Stocks are bursting higher and recovering from this morning’s losses, while the dollar is heading in the opposite direction
  • EUR/USD is up almost 100 pips as it attempts to recover earlier losses

EUR/USD has gained around 100 pips in less than an hour after the Federal Reserve announced plans to initiate asset purchases with no limit to support the embattled markets.

Fundamental analysis: “Whatever it takes” approach

It’s now apparent that Fed’s approach is ‘whatever it takes’. After slashing interest rates to near zero last week, Fed announced the launch of an artillery of different programs and support packages to assist the markets in recovery. In other words, the Fed is throwing the kitchen sink at markets.

“Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate,” it is said in a statement.

“The Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses”.

In layman terms, the Fed has just said it will buy limitless amounts of government-backed bonds i.e. they will be buying anything they can get their hands on.

“This move is unprecedented. The Fed is buying everything. Today’s announcement is unprecedented in both size and scope. It is a complete perversion of market functioning and a nuclear bomb more than a bazooka,” wrote Forexlive’s Adam Button.

The stock market has reacted positively to the latest move from Fed, which is more than expected, while the dollar is heading lower across the board. It is still unknown how the market will react to this move in the mid and long term, given the existential threat that the coronavirus poses on economies and businesses.

Technical analysis: Dollar under pressure

As expected, the dollar is moving lower across the board, while the stocks are shooting higher. USD/JPY is down around 60 pips, the pound has gained more than 100 pips against the greenback, while EUR/USD is up nearly 100 pips as well.

EUR/USD hourly chart (TradingView)

As seen in the hourly chart, the price action has bursted higher following the Fed announcement. As a result, the series of lower highs and lower lows has been broken, hinting that the EUR/USD may head north in the coming hours and days.

The key support remains at $1.0650, while the resistance levels to pay attention to are $1.0830 first, followed by $1.0950.

Summary

The US dollar has been moving lower in the past hour after the Federal Reserve announced plans to purchase a limitless amount of government-backed bonds to support the markets. As a result, EUR/USD is up nearly 100 pips from today’s lows.

By Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His passion has given him first hand experience of trading, while his writing means he understands the market forces and wider regulation.
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