EUR/USD is still trading at around 1.17 that is viewed as a correctional retracement. Earlier, the pair hit 1.1704, the lowest mark of 2021. For the last weeks, the US currency has been advancing in anticipation of a new stimulus package proposed by the White House. The investment plan aimed to re-ignite the US economy measures from $3 to $4 trillion. Yesterday, US President Joe Biden presented his detailed plan to overhaul the US infrastructure and manufacturing. Following the presentation, the US dollar lost some steam across the board. The thing is that Biden's infrastructure project did not discourage investors. In fact, investors pinned too big hopes on a new recovery package. Besides, Joe Biden is facing another major legislative battle in Congress. Indeed, not all lawmakers, including Democrats, support such humongous increase in budget spending and a tax hike which is needed to ensure funding for huge public investments.
Hence, when the White House presented the plan of budget spending worth almost $2.6 trillion, EUR/USD subdued its climb at the level nearly 1.17. Traders took profit from a two-week downward move. Since March 18 until March 31, the pair dropped almost 300 pips. After such a steady downward marathon, traders found it appropriate to close short positions on EUR/USD. The market needs a pause for breath. The latest IMF report also dragged down the US dollar. The International Monetary Fund reported that the share of the US dollar in forex reserves shrank in Q4 2020 to the lowest level in the last 26 years. Interestingly, the US dollar holdings contracted for three quarters straight. Experts think that ultra-loose monetary policy of the US Fed and swelling budget deficit in the US account for this situation.
From my viewpoint, the above fundamental factors are short-lived. Currently, experts are mulling over different scenarios of Joe Biden's recovery package. Some experts reckon that the White House will face obstacles in Congress to enforce the bill into law for obvious reasons. This would be the largest ever stimulus package which would entail a tax reform. Other analysts think that Democrat Joe Biden insists on a new recovery package fulfilling his election pledges. Another thing is that the Congressional election both to the Senate and the House of Representatives will take place in the US next year. That's why the Democrats are not interested in the political discord inside the party. There is a fair chance that the controversial bill will spark off feud among policymakers. Eventually, there is an opinion that Joe Biden's proposal will be split into some legislative elements which will be finally approved, albeit with some amendments.
As for the IMF report, it looks back into the past. In 2020, the US Fed actually embarked on aggressive easing of monetary policy's settings. Besides, the US budget deficit tripled last year. In this context, no wonder that the share of the US dollar in forex reserves fell sharply in Q4 2020 to the lowest level since 1995. Nevertheless, this fact makes no sense when reckoning the current and long-term prospects of the US economic recovery.
The US nonfarm payrolls both in January and February confirmed a revival on the US labor market. Besides, the market has high expectations for the figures for March. The unemployment rate is expected to decline to 6% with 630,000 new jobs in the US private sector. The ongoing relief aid is sure to bolster consumer inflation. The CPI was in line with expectations earlier this year. The most of other macroeconomic indicators also prove a steady pace of the US economic recovery. For example, today the ISM manufacturing PMI surged to the strongest level in 37 (!) years in March. The index came in at 67 points, much better than the expected 61 points. This is the best score since February 1984. Importantly, the indicator has been growing for three months in a row.
On the vaccination front, the US has achieved notable progress in the mass vaccination nationwide. The US health facilities make 2.5 million injections on a daily basis. Nowadays, almost 140 million Americans have been provided with the first jab of the coronavirus vaccine. The US population amounts to 320 million people. In contrast, Europe is lagging behind. As of today, only 10% of the European population has been vaccinated with the first dose.
All in all, a lot of fundamental factors provide the US dollar with solid support. So, the ongoing upward retracement of EUR/USD is viewed as an upward correction. The ceiling of the upward correction is seen at 1.1820 which is a Tenkan-sen line in the daily chart. Once the ongoing upward correction is over, it would be a good idea to consider selling EUR/USD with the downward target of 1.1704 which is the lowest level of 2021 coinciding with the lower border of Bollinger Bands on the daily chart.