Fed Sounds The Alarm

At the April FOMC meeting held yesterday, the Fed held no punches in warning the market over the severity of the economic threat from COVID-19. As per the market’s expectations, in line with the massive, historic moves announced by the fed over the prior month, no further adjustments were made to monetary policy at this juncture. However, all focus was on the Fed’s assessment and outlook.

The statement issued alongside the monetary policy decision has developed significantly from the prior month with the Fed acknowledging the severe deterioration in economic conditions.

Referencing the impact of the lock-downs, the Fed said: “The virus and the measures taken to protect public health are inducing sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation.”

On the hit to households and businesses the statement noted; “The disruptions to economic activity here and abroad have significantly affected financial conditions and have impaired the flow of credit to U.S. households and businesses.”

Rates To Stay Low For Longer

On interest rates, the Fed briefed markets that it can expect rates to remain in the current band over the medium term, in line with its data dependant stance, with the statement noting: “The committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

In terms of the prospect of any further easing, which the fed remains committed to, it again highlighted its data dependent stance with the statement noting: “In determining the timing and size of future adjustments to the stance of monetary policy, the committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2% inflation objective.”

Worst GDP Print In A Decade

The Fed’s warning message came on the back of the Q1 GDP figure released yesterday afternoon which saw growth contracting -4.8% over the first three months of the year. The figure, which was worse than the -4% reading expected, was the worst quarterly reading in a decade and compounds the Fed’s concern for the economy.  The focus now will be on how quickly and broadly stay-at-home orders are lifted across the US and the pace of the recovery this quarter, which holds the potential to mark a technical recession in the US if a further negative reading is noted.

Technical Views

USDCHF ( Bearish below .9796)

From a technical viewpoint. Swissy remains in a holding pattern for now, however, the breach of the bearish trend line from year to date lows is increasing the chances of a reversal lower from current levels. If price closes below VWAP, the next downside regions to watch will  be the structural lows of .9590 (monthly pivot .9565) and .95. To the topside, only a reversal above the recent structural highs will alleviate the bearish bias.

USD Sinks On Dovish FOMC & GDP Plunge

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