The Asian trading session on Thursday was held in a calm mode - the key dollar pairs were trading flat, holding previously occupied positions. Following the widely expected speech of the head of the Federal Reserve, the currency pairs of the "major group" retained their configurations. Jerome Powell did not implement the most pessimistic scenarios, voicing theses that are already familiar to traders. The US dollar index even tried to adjust on this occasion, but this attempt looked nondescript - the indicator only moved away from weekly lows, but could not develop an upward movement.
The euro-dollar currency pair also showed minimal activity during the Asian session. Despite the weak US inflation release, the pair did not find the strength to test the resistance level of 1.2150 (the Kijun-sen line on the daily chart), after which it drifted in the narrow price range of 1.2110 - 1.2140 in anticipation of the next information drivers.
Going back to Jerome Powell. His performance yesterday was "unhelpful" for both the EUR / USD bulls and bears. Buyers of the pair did not hear "dovish" notes from the head of the Federal Reserve, while sellers had to put up with his "moderate pessimism". In other words, Powell's rhetoric was balanced: on the one hand, he did not announce an expansion of QE, on the other hand, he made it clear that the current situation does not encourage talk about curtailing incentives. Such verbal maneuvering was perceived by the market accordingly - that is, almost completely ignored.
And yet, in my opinion, the current situation is not conducive to the recovery of the US currency. Powell skillfully placed the accents of his speech, maintaining the balance of his rhetoric. But at the same time, the fact remains that key US macroeconomic indicators have recently shown weak results - especially in the field of the labor market. In fact, the head of the Federal Reserve himself admitted yesterday that the real unemployment rate in January was close to ten percent, and not to the stated 6.3%. In addition, the reduction in low-paid jobs was comparatively three times stronger than the reduction in high-paid jobs. According to him, the recovery of the labor market may take years, while the Federal Reserve is determined to achieve its goal in terms of employment. Powell did not specify what the regulator's "determination" will be, but it is obvious that all such steps will be associated with further easing of monetary policy parameters. The head of the US regulator in this context only limited himself to the phrase that "patient stimulating" monetary policy is of key importance for the recovery process.
Let me remind you that at the beginning of this year, the dollar gained momentum including thanks to rumors that the Federal Reserve will prematurely curtail QE if the US economy recovers at a faster pace. Powell did admit yesterday that the impact of the second wave of the coronavirus crisis was weaker (relative to the situation that occurred in the spring of 2020) - but he made it clear that it was too early to talk about curtailing incentives. Especially against the background of the January Non-Farms, almost all the components of which were in the red zone.
All this suggests that the US currency remained under background pressure, despite the fact that Powell did not artificially drown it. In this regard, the behavior of the US dollar index looks indicative, which, following the speech of the head of the Federal Reserve, tried to correct itself, but by the start of the European session on Thursday, it lost all the points it won resuming its downward movement.
The euro-dollar pair, however, is in no hurry to use the vulnerability of the greenback. A kind of anchor for the couple is Italy, where the political crisis has not yet been resolved. The former head of the ECB is trying to form a government, consulting with the political forces represented in parliament. The negotiation process was supposed to end yesterday, but as it became known on Wednesday evening, political consultations are still ongoing. Many parties supported Mario Draghi, although it was not possible to reach an agreement with some politicians. In particular, we are talking about the "5 Star Movement" (negotiations are still underway with them) and the Brothers of Italy, whose leader is Giorgia Meloni, which finally stated already that she will not vote in parliament for confidence in the future government... In other words,
It can be assumed that if this intrigue is resolved (in favor of Mario Draghi), the European currency will receive the necessary momentum that will allow the pair's buyers to overcome the nearest resistance level of 1.2150 (the Kijun-sen line on the daily chart ). In this case, the EUR / USD bulls will be able to claim the 22nd figure, since the next resistance level (the upper line of the Bollinger Bands, coinciding with the upper boundary of the Kumo cloud on D1) is located at 1.2200. It is advisable to open long positions when the pair is fixed above the Kijun-sen line on D1.
