US Equities Recover As Fed Gives Rate Cut Signal

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Dollar Falls Further

The US dollar is undergoing a dramatic depreciation. The USD index is now down for seven consecutive days, falling from highs of 99.80 to lows of 97.20s as of writing. The sell-off has been intensified late last week. This came in response to comments from Fed Chairman. Powell pointed to the potential for a return to easing this year in a bid to help buffer the economy against the damage from the ongoing coronavirus outbreak.

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In an unscheduled statement released last week, Powell reassured the market that the Fed:

“will use our tools and act as appropriate to support the economy”.

The statement was released against a backdrop of further, heavy losses in equities/commodities markets and the US dollar alike.

Fed is Monitoring Developments

While Powell was keen to highlight that “the fundamentals of the US economy remain strong”, the Fed chairman went on to say:

“However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook.”

The statement took the market by surprise, as did the Fed chairman’s notably dovish guidance. Earlier that day, Fed’s Bullard had said that he didn’t feel the Fed would need to cut rates in response to the outbreak. However, on the back of Powell’s statement, the market is now fully pricing in a cut at the upcoming March meeting. Pricing also suggesting further cuts this year.

Markets Helped By Stimulus Expectations

Equities markets have started to recover. This came following Powell’s statement as the prospect of fresh stimulus helped the SPX500 bounce off initial lows on the week. The spread of the virus continues to intensify around the world and health authorities have warned that a vaccine could still be months away. The mood is still very much once of concern and uncertainty.

Technical Perspective

The severity of the sell-off in the SPX500 over the last week is clear to see. Price has broken down through several key support level to trade lows of 2855.04 before recovering. Price is now trading back up to challenge the 3025.25 level. This is an important area as it also holds the completion of the symmetry move with the last push into highs before we saw the sell-off last week. Above here, the next level to watch is the 3087.49 level ahead of the retest of the broken bullish trend line.

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