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EURUSD forecast for 13.05.2020

May 13, 2020

May 13, 2020

Dollar demands a giftDmitri Demidenko

The Fed’s rate cut below zero could be a real gift for the US economy

Everything has a price to pay. If the Fed claims there are necessary extra tax deductions to decrease the unemployment rate from its potential peak at 20% to 9%-10%, then it could give a gift to the US economy and lower the federal funds rate below zero. President Donald Trump said the US economy deserves such a gift, and the market is more responsive to his comments than to the announcement of the FOMC officials about the harm of negative interest rates.

The cure can really be more harmful than the illness. If the federal funds rate drops below zero, not only investors and banks will suffer, but the entire huge industry of the US money market funds. Nonetheless, not everybody shares this opinion. For example, JP Morgan citing the ECB’s experience believes that a moderate cut of the interest rates into the negative area will yield more positive than harm. The positive resulted from the easing of the financial conditions and lower fragmentation risks in Europe outweighs the negative from the drop in the interbank market activity.

Besides, the U.S. has to fund the costs of the huge volume of Treasuries issuance. The U.S. budget deficit soared to a record of $1.935 trillion in the 12 months through April, and the Treasury is planning to issue $3 trillion in Treasuries in the second quarter and $4.5 trillion in 2019⁄2020 fiscal year. If buyers pay those debts, it will be a real gift for the U.S. economy. Also, the U.S. dollar will go weaker, as it should be pressed down over the long-term prospect by both the huge debt and the excessively boosted the Fed’s balance sheet.

Dynamics of central banks’ balance sheets

![LiteForex: EURUSD forecast for 13.05.2020][1]

Source: Financial Times

If Congress is willing to meet the Fed’s claims on the expansion of the fiscal stimulus (House Democrats prepared the plan on an additional $3-trillion aid package), will the central bank be so amendable in response? The strangest thing, to my mind, is Donald Trump’s behavior in this situation. Earlier, he spared no money to draw the US GDP to 3%, without thinking about the consequences, but now he says the states, which do not manage their budgets effectively, should not receive the federal assistance, he also holds back the negotiations. Could it result from the fact that the bill was proposed by the Democrats, not the Republicans?

After all, the talks about potential Fed’s negative interest rates have not been enough to send the US dollar down. The [EUR/USD][2] bears have quickly gained back control after Trump ordered the main federal government pension fund, managing about $600 billion, not to invest in the Chinese stocks, based on national security concerns. The US-China trade war hasn’t yet ended, which, together with the concerns about the second wave of the pandemic, weighs on the S&P 500. The crash of the __ US stock market on May 12 sent the euro down. If the euro goes below the zone of $1.084-1.0845, bulls will have serious problems. __

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Price chart of EURUSD in real time mode

![Dollar demands a gift][5]

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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