Federal Reserve Chairman Jerome Powell met the expectations of traders by taking a passive stance at the April meeting of the US central bank. The last spring meeting turned out to be "passing", in accordance with the forecasts of most analysts. The rhetoric of the accompanying statement and, in fact, Powell exerted little pressure on the dollar, but overall market participants calmly reacted to the results of the April meeting.
The market showed a more volatile reaction several hours before Powell's press conference, when data on the growth of the US economy for the first quarter was published. In other words, yesterday ended clearly not in favor of the dollar bulls, although the EUR/SD pair was not able to leave the area of the eighth figure.
What did Powell say? He repeated those theses that he had voiced earlier - at the last March meeting and during subsequent speeches. Arguing to keep the rate at the current level, Powell quoted the wording of the accompanying statement almost verbatim: "... the ongoing crisis will significantly affect economic activity, employment and inflation in the near future and pose significant risks for the economy in the medium term."
At the same time, Powell emphasized that the rates will remain near zero until the economy overcomes the consequences of the pandemic and "steps on the path" to the targets for maximum employment and price stability. In other words, the key economic releases will again be in the spotlight for dollar bulls — primarily inflation and Nonfarm. And while these indicators will show negative dynamics, rates will be at the current level. In addition, the Fed chief assured reporters that the regulator will maintain the volume of purchases of treasury bonds and securities, and will continue to offer large-scale overnight repos.
Commenting on the current situation, Powell focused on two important points. First, in his opinion, the American economy will need additional money from Congress and the White House: "the country will need more help than has been provided so far to ensure a reliable recovery after a widespread and deep recession." Secondly, he warned that in the next quarter the US economy "will fall at an unprecedented pace." Let me remind you that, according to data released yesterday, US GDP fell by 4.8% with a more optimistic forecast of a decline of 3.9%. According to experts (in particular, Goldman Sachs), the economy will collapse by 24% in the second quarter, while some Fed representatives allow a recession of up to 30–35%.
Thus, the essence of the April meeting boils down to the following: the Fed does not intend to change the monetary policy parameters and is ready to continue pumping liquidity into markets. At the same time, the Fed chief voiced peculiar "demands" to Trump and Congress for the provision of additional assistance, given the projected unprecedented economic decline in the second quarter. In general, Powell did not say anything new, but the general pessimistic tone of his statements put pressure on the US currency.
But the bulls of the EUR/USD pair did not become the beneficiaries of this situation. A slight weakening of the dollar made it possible for buyers to once again stay above the resistance level of 1.0850. However, for large-scale corrective growth, traders need to exceed at least 1.0930 (the Kijun-sen line on the daily chart), and for reliability, the price target should be 1.0960 (the upper Bollinger Bands line on the same time frame). At the same time, the upward momentum faded for the pair yesterday, barely starting, - traders were in no hurry to open long positions ahead of the April meeting of the ECB, which will be held today. In addition, today we find out data on the growth of the European economy and inflation - these macroeconomic reports can also put significant pressure on the euro.
But above all, of course, the meeting of the ECB members is in the spotlight. Let me remind you that last week the leaders of the EU countries held a summit, the results of which left an ambiguous impression on market participants. On the one hand, they approved an assistance program for 540 billion euros. But on the other hand, they could not agree on a large-scale and long-term plan for restoring the eurozone economy. The indecision of EU leaders, as well as disagreements between representatives of the south and north of Europe, may push members of the European Central Bank to more decisive action. In particular, rumors are circulating in the market that ECB members may increase their bond purchase program to a trillion euros at the April meeting. According to other analysts, the European regulator will only announce such intentions, but will begin to act in June (when updated forecasts will be published) or in July (when the fate of the above plan to restore the eurozone economy will be clear). Such rumors put significant background pressure on the euro, leveling all the conquests of the EUR/USD bulls.
Given this disposition, trading decisions should be made only at the end of the ECB meeting in April (i.e., after Christine Lagarde's press conference). The ECB may well take a wait-and-see attitude at least until June, and then everything will depend on the rhetoric of the central bank chairman. It is advisable to open long positions when overcoming the above resistance level of 1.0930. In turn, short positions should be considered when consolidating below 1.0850 - if the ECB meeting in April ends not in favor of the euro, then the EUR/USD bears will again open the way to the support level of 1.0760 (the lower line of the Bollinger Bands indicator on the daily chart).
