The US dollar index follows the yield of the Treasury once again. In view of the implementation of the new stimulus package, the yield on 10-year US government bonds remains above 1.6%. In turn, the USD dominates the major dollar pairs, reflecting increased interest from investors. Last Friday, Joe Biden signed an almost $ 1.9 trillion aid package, and then followed by Americans receiving checks for $ 1,400 the next day. According to the local press, the authorities have simplified the procedure for obtaining these funds as much as possible: the tax department independently determines whether a person belongs to the appropriate category, providing him financial assistance. Such a system will allow them to quickly release the funds allocated for this purpose. It should be recalled that we are talking about $410 billion, which is currently the largest round of direct payments to Americans in the entire history of the United States.
Given such large volumes and rapid rate of pumping the economy with actual money, a natural question arises: where will these funds exactly "flow"? Here, experts have various opinions. Majority of them believe that people will rush into the stock market, provoking another rally. The supporters of this scenario recall that the influx of liquidity associated with the previous stimulus package helped US stocks to rise to record values. Based on the latest sociological research, US residents are ready to send about 40% of the additional aid funds received to the stock market.
Meanwhile, other analysts of banking conglomerates believe that Americans will not follow an aggressive "buy everything" policy at this time. A quite serious issue here is the growth in bond yields, which provoked a massive sale of shares popular with retail investors. The lack of strong growth impulses for prominent stocks may play a role. In addition, digital currencies should also be considered. For example, Bitcoin's price surpassed the 60,000 mark, while US residents began to receive their first payments last Saturday. According to experts interviewed by CBS News, these two facts are interconnected. They stated that Americans are buying digital currencies because of very low rates, which have reduced the attractiveness of bonds and other assets.
However, it is too early to say any definite conclusions on this issue right now. If we start from the facts, then we can state only one circumstance: the US economy began to be pumped with real money, and the consequences of this can be expected soon. But, it is a debatable question whether people will rush to the stock market, invest in digital coins or demonstrate a consumer boom. Also, it should be recalled that Americans have significant funds accumulated during periods of quarantine restrictions, in the amount of $ 1.5 trillion according to Bloomberg economists. If this money "goes to waste" in the second half of this year, then inflation indicators can really show a surge in growth, warning of an "overheating" of the economy.
Such prospects allow the US dollar to gain impulse, including in a pair with the Euro currency, which has its own problems in connection with European vaccinations. Yesterday, it became known that the Netherlands and Ireland, following other EU states, are suspending the vaccination of the population against coronavirus with the drug company AstraZeneca. Earlier, Norway, Denmark and Austria announced a similar decision. It is worth noting that vaccination was suspended temporarily for two weeks due to information about the formation of blood clots in those vaccinated. This is not the only important difficulty that slows down the pace of vaccination of the European population against COVID-19. This also includes bureaucratic delays, disruptions in the supply of drugs, etc. All this has led to the fact that only 6% of the EU population is fully vaccinated, compared to the UK, with a share of 33%, and in Israel, with 57% respectively. As for the United States, about 35 million people have already been fully vaccinated out of 328 million population, while 65 million people have received at least one dose of the vaccine. Thus, a total of 100 million doses of the vaccine were used to immunize the population.
During the last ECB meeting, Christine Lagarde directly linked the pace of vaccination of the population of the European region with the pace of economic recovery in the eurozone. Meanwhile, the EU countries are forced to extend quarantine restrictions amid the third wave of the pandemic, which hinders the growth of key macroeconomic indicators.
As a result, the US currency is in favor from fundamental factors. Several factors such as the rising treasury yields, actual implementation of the "American Rescue Plan" and the expectation of the Fed's "hawkish" rhetoric are pushing the dollar higher across the market. In turn, the European currency is under pressure from the vaccination process.
Technically, the pair is located between the middle and lower lines of the Bollinger Bands indicator on the daily chart, which also indicates that the downward movement is the priority. The pair is still showing a bearish trend, which is confirmed by the main trend indicators – Bollinger Bands and Ichimoku. The latter has formed its strongest bearish signal "Parade of Lines." In fact, all indicator lines on the D1 are above the price chart, which puts pressure on the pair. The downward target is set at the level of 1.1840. This is the low for this year, coinciding with the lower line of the Bollinger Bands indicator on the same time frame.
