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EURUSD forecast for 28.04.2020

April 28, 2020

April 28, 2020

Central banks are waking the euro upDmitri Demidenko

Can the Fed and the ECB make the EUR/USD move?

A bright poster does not promise an interesting show that will make the audience enthusiastic. It would seem that the important events in the week through May 1, such as the meetings of the Fed and the ECB, and the publications of GDP data in the USA and the euro area, should allow traders expect strong moves in the [EUR/USD][1] pair. However, the derivatives market doesn’t expect anything special. There has been a steady fall this month in demand for options that pay out should the euro trade at wider ranges in the short-term than recently seen. The relative premium to hedge the euro over the next week crashed to almost a zero level.

Dynamics of spread between the implied and realized volatility for in the EUR/USD pair

![LiteForex: EURUSD forecast for 28.04.2020][2]

Source: Bloomberg

Investors do not expect anything new from the Fed’s meeting, but this doesn’t mean that there will no additional forward guidance revealed. In March, Jerome Powell suggested a V-shaped recovery of the US economy, and investors will be carefully watching for any changes in his tone to decipher the bank’s next moves. The Fed’s willingness to buy an unlimited amount of Treasury and mortgage-backed securities resulted in the growth of the daily pace of Treasuries buying to $75 billion per day, however, the pace was down to $10 billion per day in late April. This is also a huge figure that suggests that the Fed’s balance sheet will be boosted from the current $6 trillion to $8 trillion - $11 trillion. Investors are concerned about further changes in the QE pace.

I must note that the Fed, due to its huge monetary stimulus, has entered the unknown territory and now faces a number of key risks. What if some lending programs fail to work? Will the US administration further give instructions to the central bank? Won’t the Fed’s selective approach to borrowers undermine the confidence in the regulator? The Fed mostly provides aid to large companies working closely with capital markets.

Dynamics of balance sheets of the Fed and the ECB

![LiteForex: EURUSD forecast for 28.04.2020][3]

Source: Bloomberg

The ECB also has problems. Furthermore, the European central bank faces two problems that the other central banks don’t have. One is the risk to the integrity of the Eurozone. The other is the weakness of the European banking system. The Eurozone remains far more dependant on bank finance than the U.S., where the bond market is more important.

Both the Fed and the ECB have two save the economies hit by the coronavirus outbreak. The Reuters experts forecast that the euro-area GDP, following six consecutive years of growth, will contract by 3.2% in the second quarter, the US GDP will lose 4%. Bloomberg gauges the losses of the global economy at 4% in 2020, which is about $6 trillion. The euro-area GDP will be 8.4% down, the U.S. growth rate will lose about 6.4%.

In my opinion, the [EUR/USD][1] won’t wake up and exit the trading range of 1.075-1.09 unless the European QE pace is suddenly increased to €500 billion - €1000 billion. Without this, the [EUR/USD][1] will be following the US stock indexes and expect the Eurogroup decision on the fiscal stimulus .

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Price chart of EURUSD in real time mode

![Central banks are waking the euro up][6]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=EURUSD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/eurusd/eurusd-spreed-volatility-28-04-20.jpg?w=30&s=c7e26439884862098c67ca71fc4c0943
  3. cdn.liteforex.com/cache/uploads/blog_post/eurusd/ecb-fedreserve-28-04-20.jpg?w=30&s=059ab538420cf16107cc892e79ae690f
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  6. cdn.liteforex.com/cache/uploads/blog_post/eurusd/liteforex-blog-eurusd-28-04-20.jpg?q=75&w=1000&s=1ec4776693107cc2f5d00bff072734d8