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The FED, USD, and the Coronavirus Outbreak

April 3, 2020 by Daniels Trading| Tips & Strategies

The 2020 outbreak of the novel coronavirus (COVID-19) created a financial environment driven by angst and trepidation. COVID-19 panic swept the globe, placing the world’s capital structure under extreme pressure. The result was consistently high volatilities in the commodity, equity, currency, and debt markets.

To combat the economic fallout, the U.S. Federal Reserve (FED) took action. The FED cut lending rates to zero and rapidly instituted a sweeping quantitative easing (QE) program. Although these measures were initially unsuccessful in checking stock market volatility, the impact on the U.S. dollar (USD) was profound. As we move into the post-coronavirus era, it will be exceedingly important to monitor how the USD reacts to an unprecedented financial dynamic.

COVID-19 and the FED

Although COVID-19 originated in Wuhan, China, in December 2019, the virus didn’t begin its assault on the markets until late February 2020. Following Feb. 22 and 23 reports that the contagion was spreading through Italy, world stock markets plunged. Unfortunately for buy-and-hold equities investors, the Feb. 24 crash of 1,000 points (-3.5%) in the Dow Jones Industrial Average (DJIA) was only a preview of things to come.

Beginning on March 3, the FED led the battle against the COVID-19 financial crisis:

  • March 3: The FED cut the Federal Funds Target Rate by ½ point in an emergency policy adjustment.
  • March 12: Chairman Jerome Powell announced that the FED would inject $1.5 trillion into the financial system. The action sought to ensure liquidity via overnight interbank lending mechanisms.
  • March 15: In a surprise move, the FED announced another emergency rate cut, this time by a full percentage point. With the Federal Funds Rate now at 0 percent, Chairman Powell stated that the FED was going to “go in strong” on asset purchases. Accordingly, a minimum of $700 billion in assets was to be purchased by the FED over the coming months.
  • March 23: The FED took unprecedented action, launching a sweeping quantitative easing program. Nicknamed “QE Infinity,” the FED was to purchase assets indefinitely “in the amounts needed.” This policy move left the central bank free to extend QE by any means necessary.

Ultimately, the FED decided to launch preemptive policy strikes against the coronavirus economic fallout. The path of aggressive rate cuts and QE was largely based upon the actions taken during the global financial crisis of 2008.
In addition to protecting your health from infection, now is an important time  to protect your finances from unpredictable price movements in the markets.  View our page dedicated to the news and updates you need to stay informed about  how your futures could be affected by the coronavirus (COVID-19).

The USD’s Reaction

As the world’s reserve currency, the USD is much more than a conduit for exchange. Depending on economic circumstances, it may function as a speculative tool, mode of investment, or financial safe haven.

As the coronavirus became a primary market driver, the FED’s actions brought a unique set of conditions to the USD’s valuation. During the initial stages of the outbreak, the greenback lost value as the foreign exchange markets (forex) priced in expected rate cuts and QE. However, once COVID-19 reached pandemic proportions, investors turned to the USD as a safe haven. The end result was wide trading ranges for the world’s major currency FX futures contracts between March 1 and 20:

Contract (2020) Base Pair High-Low Gain/Low (Approx.)
June Euro FX EUR/USD 1.15305-1.07790 -3.7%
June British Pound FX GBP/USD 1.3161-1.1475 -7.1%
June Australian Dollar FX AUD/USD 0.6680-.05703 -11.5%
June Swiss Franc FX CHF/USD 1.0910-1.0180 -2.5%
June Canadian Dollar FX CAD/USD 0.75075-0.68290 -6.4%

High volatility has defined the currency markets throughout the COVID-19 pandemic. Subsequently, the USD has emerged as a pillar of stability. Despite FED rate cuts and extensive QE, the greenback has become a hot commodity among individuals and institutions alike.

Interested in Trading FX Futures?

The lineup of currency futures products available on the Chicago Mercantile Exchange (CME) furnishes traders with a variety of ways to trade the USD. Whether as a hedge against the unknown or as speculative vehicles, FX futures can be a valuable part of your portfolio. To learn more about how this exciting asset class can help you achieve your financial goals, schedule a free consultation with a Daniels Trading currency market specialist today.
Daniels Trading and the Coronavirus (COVID-19)

Filed Under: Tips & Strategies

About Daniels Trading

Daniels Trading is an independent futures brokerage firm located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading is built on a culture of trust committed to the firm’s mission of Independence, Objectivity and Reliability.

Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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Risk Disclosure

THIS MATERIAL IS CONVEYED AS A SOLICITATION FOR ENTERING INTO A DERIVATIVES TRANSACTION.

THIS MATERIAL HAS BEEN PREPARED BY A DANIELS TRADING BROKER WHO PROVIDES RESEARCH MARKET COMMENTARY AND TRADE RECOMMENDATIONS AS PART OF HIS OR HER SOLICITATION FOR ACCOUNTS AND SOLICITATION FOR TRADES; HOWEVER, DANIELS TRADING DOES NOT MAINTAIN A RESEARCH DEPARTMENT AS DEFINED IN CFTC RULE 1.71. DANIELS TRADING, ITS PRINCIPALS, BROKERS AND EMPLOYEES MAY TRADE IN DERIVATIVES FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS. DUE TO VARIOUS FACTORS (SUCH AS RISK TOLERANCE, MARGIN REQUIREMENTS, TRADING OBJECTIVES, SHORT TERM VS. LONG TERM STRATEGIES, TECHNICAL VS. FUNDAMENTAL MARKET ANALYSIS, AND OTHER FACTORS) SUCH TRADING MAY RESULT IN THE INITIATION OR LIQUIDATION OF POSITIONS THAT ARE DIFFERENT FROM OR CONTRARY TO THE OPINIONS AND RECOMMENDATIONS CONTAINED THEREIN.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE. THE RISK OF LOSS IN TRADING FUTURES CONTRACTS OR COMMODITY OPTIONS CAN BE SUBSTANTIAL, AND THEREFORE INVESTORS SHOULD UNDERSTAND THE RISKS INVOLVED IN TAKING LEVERAGED POSITIONS AND MUST ASSUME RESPONSIBILITY FOR THE RISKS ASSOCIATED WITH SUCH INVESTMENTS AND FOR THEIR RESULTS.

TRADE RECOMMENDATIONS AND PROFIT/LOSS CALCULATIONS MAY NOT INCLUDE COMMISSIONS AND FEES. PLEASE CONSULT YOUR BROKER FOR DETAILS BASED ON YOUR TRADING ARRANGEMENT AND COMMISSION SETUP.

YOU SHOULD CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES AND FINANCIAL RESOURCES. YOU SHOULD READ THE "RISK DISCLOSURE" WEBPAGE ACCESSED AT WWW.DANIELSTRADING.COM AT THE BOTTOM OF THE HOMEPAGE. DANIELS TRADING IS NOT AFFILIATED WITH NOR DOES IT ENDORSE ANY TRADING SYSTEM, NEWSLETTER OR OTHER SIMILAR SERVICE. DANIELS TRADING DOES NOT GUARANTEE OR VERIFY ANY PERFORMANCE CLAIMS MADE BY SUCH SYSTEMS OR SERVICE.

GLOBAL ASSET ADVISORS, LLC (“GAA”) (DBA: DANIELS TRADING, TOP THIRD AG MARKETING AND FUTURES ONLINE) IS AN INTRODUCING BROKER TO GAIN CAPITAL GROUP, LLC (GCG) A FUTURES COMMISSION MERCHANT AND RETAIL FOREIGN EXCHANGE DEALER. GAA AND GCG ARE WHOLLY OWNED SUBSIDIARIES OF STONEX GROUP INC. (NASDAQ:SNEX) THE ULTIMATE PARENT COMPANY.

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