As a result of the Asian session on Tuesday, the EUR/USD pair stayed within the ninth figure which is a good sign for bulls, since price is expected to rise further to the first resistance level of 1.0950 (the lower border of the Kumo cloud which coincides with the upper the Bollinger Bands indicator line on the daily chart) and the second resistance level of 1.1060 (the upper border of the Kumo cloud on the same timeframe).
Moreover, the pair's growth depends not only on the general weakening of the US currency, but also on the strengthening of the euro. For two weeks, the EUR/USD pair has been moving within the 150-point range (1.0750-1.0890): any correction was due to the devaluation of the US dollar and ended at the borders of the ninth figure. At the moment, the situation has changed. Buyers of the pair received support from European fundamental factors, while the greenback is still under pressure. Such a combination of circumstances allowed the EUR/USD bulls to break out of the flat swamp. Currently, the main task is to maintain their positions, and to go above the first resistance level of 1.0950. Then it will be possible to speak not about a large-scale correction, but about the first signs of a trend fracture.
There are two reasons why the greenback is weak. Firstly, the overall risk appetite has increased in the market. The spread of the coronavirus is noticeably slowing down around the world. One of the American companies announced its success at the first stage of testing the vaccine against Covid-19. Quarantine restrictions are easing across the world. The world major economies are gradually coming back to life. In addition, oil demand in China almost returned to pre-crisis levels. This fact has had a significant impact not only on oil quotes, but also on the foreign exchange market. China is the second largest consumer of oil in the world (second only to the United States). Thus, such a rapid recovery in demand in this country indicates a lot. News from China helped Brent crude oil cross the $35 mark, while commodity and risk currencies, including the euro, rose in price on the foreign exchange market.
Secondly, the greenback is weaks due to political battles around the high-profile bill on the provision of three-trillion dollars aid to the US economy. After the House of Representatives approved the Democrats initiative, it became clear that the bill would not go through the Senate, where the majority are controlled by Republicans. The White House has criticized the proposed document, essentially accusing the Democratic Party of pre-election PR campaign. Meanwhile, US statistics continue to break the record, worrying many Fed members, including Jerome Powell.
Today, the head of the Federal Reserve will speak at the Senate Banking Committee, where he can announce further steps to mitigate monetary policy. In his previous speeches, Powell called on congressmen to adopt the above bill. However, this became a political issue. Therefore, the current situation may push the Fed to more decisive action. In anticipation of today's Powell speech, EUR/USD traders behave quite cautiously, because if he maintains a wait-and-see position, the US dollar may receive some support which will affect the positions of the pair.
As for the euro, it strengthened yesterday thanks to Angela Merkel and Emmanuel Macron. They issued a joint statement stating the need to create a fund for economic recovery in the European Union. They plan to borrow 500 billion euros, which will be given to lenders within 20 years.
The results of the last online summit of European leaders (which took place in April) disappointed investors. On the one hand, they approved a programme of assistance worth 540 billion euros. On the other hand, they could not agree on a large-scale and long-term plan for the restoration of the eurozone economy, the amount of assistance under which could reach from one to a trillion euros. European leaders postponed this question, instructing the European Commission to work out the details of the economic recovery plan for the next meeting of the Eurogroup, which will be held in May. The head of the ECB, Christine Lagarde, at the same time voiced a rather pessimistic rhetoric, the essence of which boils down to the fact that Europe is too slow and insufficient to respond to the challenges of the epidemic.
According to most experts, the indecision of EU leaders was primarily associated with the position of Germany which provoked disagreements between representatives of the "south" and "north" of Europe. The famous coronobons divided the continent into two camps which representatives were bogged down in the political struggle. And now, a month later, Berlin dramatically changes its mind. This is not about the coronobons. However, the money from the above fund will be allocated to the EU countries most affected by Covid-19 not in the form of loans, but in the form of grants.
According to the voiced proposals, the European Commission should lend money in the financial markets on behalf of the European Union. All 27 EU member states must support this initiative. It is worth noting that the head of the European Commission, Ursula von der Leyen, has already called this initiative "constructive", promising to develop a detailed plan for its implementation by May 27.
Thus, the EUR/USD pair retains the potential for further growth. If representatives of the "south" and "north" express support for the Merkel-Macron initiative and the US dollar does not strengthen after Jerome Powell's speech, the pair is likely to reach the first resistance level of 1.0950 (the lower border of the Kumo cloud, which coincides with the upper line of the Bollinger Bands indicator on the daily chart) and test the second resistance level of 1.1060 (the upper border of the Kumo cloud on the same time frame).
