The euro-dollar pair updated its three-week price high on Tuesday, testing the resistance level of 1.2150 (the upper line of the Bollinger Bands indicator on H4). Buyers of EUR/USD tried to gain a foothold above this target, thereby marking the next goal of the growth movement – the psychologically important mark of 1.2200 (the upper line of the Bollinger Bands, coinciding with the upper border of the Kumo cloud on the D1 timeframe). But as soon as the price surpassed the 1.2150 mark, the growth momentum faded – apparently, traders began to take profits en masse, opening short positions along the way.
In general, the current fundamental background contributes to the pair's succeeding growth in the medium term, although it will be quite difficult for EUR/USD bulls to conquer the area of the 22nd figure. Today, traders reacted to unexpectedly strong reports from ZEW, taking advantage of the fact that the US dollar index gradually declined to the bottom of the 90th figure. But as soon as the dollar bulls declared themselves, the European currency was forced to give way to them.
So, let's start with the positive news for the euro. Business sentiment indices from the ZEW Institute came out in the green zone, although preliminary forecasts were also very optimistic. Nevertheless, the real figures exceeded the forecasts. Positive dynamics were recorded both in Germany and in the euro area as a whole. The German index has been growing for three months-after the autumn recession, when Europe was covered by the second wave of the coronavirus crisis. It rose to 71.2 points in February, with a growth forecast of 59 points. This is the best result since September last year (then a multi-year high of 77.4 was recorded). The pan-European indicator similarly came out in the green zone, reflecting the optimism of investors. The February index rose to 69.6 points (with a growth forecast of 59.2 points) – this is a 5-month high. This dynamic is primarily due to the optimism associated with mass vaccination against coronavirus. In addition, the rate of spread of the disease in Europe over the past four weeks is gradually slowing down. And although the authorities in key EU countries have extended quarantine restrictions until at least March, the trend itself is important here.
In addition, the second estimate of the growth of the pan-European GDP in the fourth quarter was published today. The published figures, on the one hand, came out in the green zone, but on the other hand – showed that the economy of the region is still on the verge of a double recession. So, according to the release, in the fourth quarter of last year, the volume of GDP decreased by 0.6% on a quarterly basis, although most analysts expected a more significant decline – to -1.2%. At the same time, the record growth of the third quarter was revised upward (+12.5% instead of the previous value of 12.4%). In annual terms, the key indicator decreased by 5.0% instead of the projected decline of 5.5%. It is worth noting that the latest figures were better than the initial ones that were published two weeks ago. This fact also made it possible for the EUR/USD bulls to overcome the 1.2150 mark.
However, buyers of the pair could not stay above the resistance level and returned to the bottom of the 21st figure at the beginning of the US session. And it's not just about taking profits after overcoming the price barrier. The main reason for the downward pullback is the strengthening of the greenback, which reacts to the news flow regarding the fate of the "Plan to Save America".
Let me remind you that US trading platforms were closed on Monday – America celebrated Presidents Day. Therefore, by and large, the currency market has only started to work in full force on Tuesday. The beginning of trading in the United States was marked by a strengthening of the dollar amid conflicting rumors about the form in which the resonant bill on the allocation of additional assistance to the national economy will be adopted. It is known that the initial cost of the law – $1.9 trillion - will be reduced. By what amount exactly is an open question. According to most currency strategists, congressmen will eventually approve a stimulus package at the level of $1.5-1.6 trillion. But there are also more pessimistic assessments in the American press, because in order to implement the Biden plan, the United States will have to increase the national debt. The Democratic team planned to patch up the budget holes by changing tax policy-primarily by raising income taxes for the rich. And this is where discussions begin within the Democratic Party, since any issues related to changes in tax policy are very sensitive from the point of view of political (electoral) consequences.
The dollar felt needed against the background of the resulting nervousness: it began to enjoy increased demand amid a surge in anti-risk sentiment. But given the previous similar spikes, we can assume that the greenback's appreciation will be temporary. As soon as the congressmen reach a certain figure, which will be equal to (or higher) $ 1.5 trillion, the dollar will again fall under a wave of sales. The greenback does not have enough strong arguments for the development of a dollar rally.
From a technical point of view, buyers of the EUR/USD pair still need to overcome the resistance level of 1.2150 (the upper line of the Bollinger Bands indicator on the 4-hour chart) in order to open the way to the main target of the growth movement - the 1.2200 mark (the upper line of the Bollinger Bands on the daily the graph, coinciding with the upper border of the Kumo cloud). After overcoming this target, the Ichimoku indicator will form a bullish Parade of Lines signal: in this case, it will be possible to talk about reaching the upper Bollinger Bands line already on the weekly chart (1.2350 level). It is advisable to open longs after the EUR/USD bulls have settled above the first resistance level, that is, above 1.2150.
