Dollar bulls have taken a break: the US currency is weakening throughout the market, following the yield of 10-year treasuries, which also shows a downward trend. Against the background of such trends, EUR/USD bulls were able to develop a more or less large-scale correction, returning to the area of the 19th figure. However, as soon as the pair overcomes the 1.1900 mark, the corrective momentum begins to weaken as sellers become active. Still, the fact remains that the dollar has halted its multi-day rally, baffling market participants. This includes EUR/USD traders, who are now faced with a quite natural question: is this price pullback a correction or has the pair formed a price low? Should I open short positions from the current heights or take a wait-and-see position so as not to fall into a drawdown?
Let's start with the fact that the correction for the pair has been brewing for a long time, since the price has been falling for a week and a half, breaking more than 300 points. After the EUR/USD bulls did not keep the support level of 1.2000, the downward trend became avalanche-like. From a technical point of view, the nearest support level is located at 1.1800, and the main one (the lower line of the Bollinger Bands on the weekly chart) is at 1.1750. That is, the price could continue to fall to the specified targets.
The foundation, in turn, also added fuel to the fire of the downward trend with enviable regularity: at first, fairly strong data on the US labor market was published against the background of rising treasury yields, then the Senate approved the long-awaited bill to allocate $1.9 trillion in additional assistance to the US economy. Plus, the high rate of vaccination against coronavirus: Americans have already been given almost 100 million doses of the vaccine – the United States is the first in the world in quantitative terms (China is in second place, which has introduced 55 million doses to its citizens). Indirect fundamental factors only complemented the overall fundamental picture. In particular, we are talking about a report by Bloomberg, according to which consumers around the world have accumulated 2,900,000,000 dollars during periods of lockdowns and quarantine restrictions. At the same time, about half of these funds — that is, about 1.5 trillion — were accumulated directly by American consumers. According to experts surveyed by Bloomberg, these savings will help the US economy recover faster after the coronavirus downturn – according to their forecasts, in the second half of the year, consumers will actively spend their accumulated funds on goods and services, thereby provoking inflationary growth.
Such a unipolar information background pushed the US currency for a week and a half. At the same time, investors actually ignored the dovish remarks from the Federal Reserve, whose representatives almost in unison declared that the central bank would not prematurely curtail stimulus programs and raise interest rates. Moreover, Fed Chairman Jerome Powell allowed inflation to rise above the target two percent level, while noting that the acceleration in consumer prices will be temporary.
All these theses were ignored by the market, as among investors the general confidence prevailed (and still prevails) that the Fed will not allow the economy to "overheat", while many key and secondary macroeconomic reports come out in the "green zone", exceeding the forecast values. In fact, the combination of these fundamental factors was the reason for the 300-point decline in EUR/USD.
Why did the greenback pause its advance and allow the pair's buyers to return to the borders of the 19th figure? In my opinion, this dynamic is also due to a number of interrelated reasons. First, the yield on 10-year treasuries declined. The indicator could not gain a foothold above the 1.6% mark, against the background of pessimism voiced in the US press regarding the practical implementation of the "Plan to Save America". According to the Reuters, problems may arise with payments that should be received by Americans under the adopted bill. So, to get "children's" money ($3.6 thousand for each child under 6 years old and $3 thousand for the rest of the minors), parents must receive a salary of less than 75,000 dollars a year. In addition, children are required to live with them for at least six months. According to experts, the verification of these points (especially the last one) may be delayed, and people, accordingly, will face delays in receiving assistance. The second problem concerns the electronic method of calculating payments. Money in this form (and not in cash or checks) should go to those who have too little income to file a tax return, as well as to the homeless. While this category of people often do not have access to the Internet.
In my opinion, the listed obstacles are insignificant, but the title of the publication did its job.
In addition, the market has again increased its appetite for risky assets. Wall Street opened in the green zone - key stock indexes are showing positive dynamics, putting pressure on the US currency in parallel.
Third, no one has canceled the trading principle of "buy on rumors, sell on facts". As soon as the upper house of Congress approved the resonant bill, many traders, apparently, recorded profits – including for the euro-dollar pair. Especially on the eve of the publication of data on the growth of US inflation (the release is scheduled for Wednesday).
The combination of the above factors made it possible for EUR/USD buyers to demonstrate a relatively small 60-point correction. But, as we can see, traders are not able to gain a foothold above the 1.1900 mark, which already acts as a resistance level. In my opinion, the dollar bulls took only a temporary pause in anticipation of the inflation release. If tomorrow's publication is released in the green zone, the market will again talk about the fact that the Federal Reserve may begin to curtail QE ahead of schedule and even raise the rate. Therefore, long positions on the pair look risky, given the timidity of EUR/USD buyers at the borders of the 19th figure. But short positions should be considered based on the results of tomorrow's release. After all, if the US inflation opens the EUR/USD bears a "second wind", then the price may in the medium term decline not only to the first support level of 1.1800, but also to the main price barrier of 1.1750 (the lower line of the Bollinger Bands on the daily chart).
