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flag ★ EUR/USD: while euro is being hit by blows from all sides, dollar prepares to return to the throne

Analysis News:::2021-03-03T16:17:06

EUR/USD: while euro is being hit by blows from all sides, dollar prepares to return to the throne

EUR/USD: while euro is being hit by blows from all sides, dollar prepares to return to the throne

Apparently, the dollar king is ready to return to the throne. According to experts, several factors will contribute to this.

In particular, the Fed is expected to be more tolerant of higher bond yields than other leading central banks.

Also, the US is likely to lead global growth, which will spur capital inflows into the country.

The continued rise in Treasury yields, at least, does not allow the dollar to resume its decline. All attempts to reduce the USD encounter resistance in the 90-point area.

As long as the upward trend in US yields continues, the dollar will remain relatively strong, with a tendency to further strengthen in the area of 92 points.

Of course, the Fed could weaken the greenback by expressing its intention to limit the growth of Treasury yields. However, Fed Chair Jerome Powell and his colleagues do not seem to be bothered by this issue.

Last week, the head of the Federal Reserve Bank of Atlanta Raphael Bostic said that the yield on Treasury bonds is still relatively low.

This contrasts with the ECB's concerns about higher bond yields in the EU.

"We should not hesitate to increase purchases and spend the entire PEPP (Emergency Asset Purchase Program) or more if needed to contain profitability," said ECB Governing Council member Fabio Panetta.

"The risk of providing insufficient support far outweighs the risk of doing too much," he added.

"The ECB is ready to respond to the unjustified tightening of financial conditions in the region. The PEPP program is flexible, and the reduction of the deposit rate remains one of the instruments of the ECB's monetary policy," said, in turn, the representative of the ECB and the head of the Bundesbank Jens Weidmann.

The EUR/USD pair reached a local high at 1.2112 on Wednesday but quickly pulled back from it, as the greenback began to strengthen again against the background of growing Treasury yields.

Also, the single currency was under pressure due to concerns about the state of the eurozone's economy.

According to IHS Markit, the eurozone's composite purchasing managers' index, which is a good indicator of economic health, rose to 48.8 points in February from 47.8 points in January. However, the indicator remains below 50 points, continuing to indicate a decline.

"The fourth consecutive monthly decline in business activity is putting the eurozone economy on a double-dip recession," IHS Markit said.

The currency bloc economy contracted in the first two quarters of last year, and an expert survey conducted by Reuters last month indicated that this will happen in the fourth and current quarter.

They cited delays in the introduction of the vaccine in the EU as the main threats, as well as concerns about new strains of coronavirus supporting the current lockdowns.

Germany is set to announce an extension of the national lockdown until March 28th. France is considering the introduction of new restrictions. At the same time, the rates of vaccination against coronavirus in Europe are only 5% compared to 15% in the United States.

Thus, the EUR/USD pair retains potential for further decline. It may soon test the 1.2000 mark again. A pure breakout of this mark and the development of a drawdown will bring into play the current year's lows, marked at 1.1950 in early February. If this low is absorbed, the bears will target 1.1880.

Analyst InstaForex
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