Stop bothering about plunging oil prices, focus on currencies this week

A lot has been talked and written about plunging oil prices after the debacle of WTI May contract and the warning is that June contract will also mature on April 30. Therefore, it is time to come out of oil syndrome and look for other investment option. In my opinion exploring investing in currencies is worth exploring.

This is a big week for the USD and EUR.  There are monetary policy meetings by Federal Reserve and the European Central Bank along with first quarter GDP numbers scheduled for release. Most of the investors know very well that the US and Eurozone economies contracted in the first 3 months 2020. It is also on record that major countries in Europe went into lockdown mode approximately 3 weeks prior to major US states. Therefore, it may be expected that Eurozone GDP growth to be weaker than the US. Yet the Federal Reserve is keener to increase stimulus than the European Central Bank. Some experts say neither of these central banks is expected to ease.

The question of whether EUR or EUR will be hit harder this week will depend on whether these central banks take more action. ECB President Lagarde recently said the Eurozone economy could contract as much as 15% but the US Fed Chief has been tight lipped about their forecasts. Earlier this month, he tried to sound optimistic, saying that the recovery post COVID-19 should be robust but it may be difficult to adhere to that outlook. Increased bond purchase is an option for both central banks but having eased aggressively between meetings, they may not be eager to up stimulus for a few more weeks.

Lately, Bank of Japan (BoJ) has pledged unlimited bond purchases, doubled its corporate bonds and commercial paper purchases, cut GDP forecast and projected inflation to remain below 2% for another 3 years, but there was very little impact on JPY. BoJ now expects the economy to contract by 5% this fiscal year which is slightly more optimistic than the IMF’s outlook. All of these announcements should have been negative for the JPY, but investors are skeptical about how much lower these efforts will drive interest rates.

On Monday, currencies and equities traded higher on the expectations that lockdown measures will be relaxed in the coming weeks. The next 24 hours is the only opportunity left for proactive trades because the event risk on Wednesday and Thursday. Therefore, significant new trades should only be undertaken after details of the central bank meetings and GDP reports are released. US consumer confidence numbers are scheduled for release and sentiment can deteriorate further. Earnings are also in focus with many big names like Apple, Amazon, Google, Facebook, Microsoft, Exxon, Shell, Pepsi, Starbucks, General Electric and 3M scheduled to release their results and guidance.

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