Dow Jones, DAX 30 Analysis and News
Source: DailyFX
Federal Reserve to Deliver QE4?
This week has seen price action in financial markets that is somewhat reminiscent of the global financial crisis of 2008-09. This had particularly been the case on March 12th, where deleveraging had been exacerbated by stress signals within the dollar funding market. Subsequently, the Federal Reserve announced a huge liquidity bomb in its repo operations while also broadening the securities it will purchase in its USD 60bln T-Bill program, which will include a range of maturities. In effect, this is essentially a QE restart from the Fed, and thus makes it increasingly likely that a more comprehensive QE program will be announced at next week’s meeting. Alongside this, the Federal Reserve is priced in to cut rates back to the zero-lower bound (ZLB) by delivering a 100bps rate cut.
Dow Jones | Risks Remain Tilted to the Downside Amid Elevated Volatility
Despite another seemingly relief rally at the back end of the week, the Dow Jones has seen history-making moves with the spread of the coronavirus continuing and concerns beginning to rise in funding markets. The Dow Jones remains vulnerable to another wave of panic selling.
| Change in | Longs | Shorts | OI |
| Daily | -18% | 18% | 7% |
| Weekly | -19% | 14% | 4% |
Dow Jones Price Chart: Weekly Time Frame
Source: IG Charts
DAX 30 | ECB Disappoints Markets, German ZEW to Crater
The response by the ECB had proved to be a much more targeted measure having decided against lowering the deposit rate deeper into negative territory. Alongside this, the EUR 120bln APP expansion had been much more on the cautious, given the fact that it equates to an extra EUR 13bln per month for the rest of the year. That said, a communication error from Governor Lagarde (“we are not here to close spreads”) and another call out for a fiscal response had failed to satisfy markets. Subsequently, the DAX extended on its declines to break below the rising trendline stemming from the financial crisis low while the Feb 2016 low holds for now. With other countries in Europe set to follow Italy’s example by placing the whole country on lockdown, the DAX will likely continue to experience further volatility in the weeks as Europe looks set to fall into a recession.
| Change in | Longs | Shorts | OI |
| Daily | -9% | 7% | 2% |
| Weekly | -27% | 9% | -5% |
As we look to next week, on the data front, eyes will be on the Germany ZEW sentiment survey and as one can expect, the question will be, how low will it go?
German ZEW Expectations to Surpass Eurozone Debt Crisis Lows
Source: Refinitiv
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--- Written by Justin McQueen, Market Analyst
Follow Justin on Twitter @JMcQueenFX
