The US dollar index started the trading week on a positive note, regaining some of the lost positions. However, this surge was temporary: the upward momentum faded by the end of today's Asian session – the indicator did not even leave the area of the 91st figure. This suggests that traders are still doubtful about the prospects of the US dollar amid the contradictory fundamental picture.
In turn, the EUR/USD pair continues to maintain the range of 1.1940-1.1990 (Tenkan-sen line at D1 and the lower border of the Kumo cloud, coinciding with the Bollinger Bands line, respectively). On the one hand, buyers do not dare to attack the 1.20 mark, but on the other hand, sellers are unable to completely reverse the pair, returning the EUR/USD to the area of 1.18 level. Last week, the pair was trading in a 50-point range, alternately starting from the borders of the price range. And although the fundamental background generally contributed to the further growth of the pair (mainly due to the weakness of the USD), the EUR/USD bulls were saved before the psychologically important target of 1.2000. This week, the trend should still tilt in one direction – either the bulls conquer the price level of 1.20, or the bears continue the downward trend, falling at least to the area of the 1.18 mark.
The current situation is not in favor of the Euro currency. The prolonged siege of the 1.2000 mark suggests that traders mostly take profits as soon as the pair approaches the borders of a psychologically significant level. At the beginning of the year, when the bears tried to break through this target from top to bottom, that is, when the 1.2000 level acted as a support level, they failed to do this for several months: the first attempt was made in January, and the last (successful) was in March. This indicates the significance of this level, which marks a reversal of the trend.
This week's economic calendar is quite weak in terms of the impact on the EUR/USD pair. The main will be the April meeting of the ECB, which will be held on Thursday (April 22). If we talk about macroeconomic reports, then all the planned releases are secondary. Among them are the weekly report on the increase in initial applications for unemployment benefits in the US (the figure declined to a multi-month low of 576,000 last week) and the release of the European PMI indices. The market will likely ignore all other publications.
Such weakness of the economic calendar for the EUR/USD pair suggests that all attention will be focused on two major fundamental factors. The first factor is the ECB's meeting this April, while the second one is more vague both in terms of time and direct impact. We are talking about Joe Biden's massive infrastructure plan, whose prospects will be discussed at the White House this week.
Let's start with the European Central Bank. According to the majority of experts polled by Reuters, the April meeting will be ignored, but at the same time, it can put pressure on the Euro currency. The regulator is likely to leave all the parameters of monetary policy unchanged, and this fact will coincide with the market expectations. However, the voiced rhetoric may not be to the liking of the EUR/USD bulls. In April, several representatives of the ECB (in particular, Villeroy) said that the regulator should indicate the rhetoric about the admissibility of exceeding the target inflation level. If this phrase is indeed included in the text of the accompanying statement, the euro may come under significant pressure. After all, this will mean that the ECB's policy will remain accommodative for a longer period of time.
In general, the ECB is likely to voice those theses that were already reiterated by the representatives during the previous weeks. For example, Christine Lagarde said last week that the European economy resembles "a crisis-ridden patient on two crutches" (by "crutches" she meant monetary and fiscal stimulus). Thus, she emphasized that appropriate support is needed throughout the recovery period. In the context of the prolongation of lockdowns in key EU countries and slowing inflation, the rhetoric of the rest of the members will also naturally be "dovish", exerting background pressure on the Euro. In particular, the accompanying statement is likely to indicate that the ECB may wind up PEPP not earlier than March next year. Overall, the position of the European regulator was quite briefly voiced by the Vice-President of the Central Bank, Luis de Guindos recently: "the risks associated with too early curtailment are higher than the risks associated with a longer period of application of easing measures." Perhaps, any additional comments are unnecessary here.
In terms of events in the US, the situation here is more ambiguous. On the one hand, Joe Biden continues to seek bipartisan support for the infrastructure plan. According to unofficial data, he set a deadline for negotiations with the Republicans for the second half of May. Meanwhile, other information (again, unofficial order) reported that the Republicans will announce a counter-proposal this week that is clearly unacceptable for Biden (reducing the tag of the bill by three times), after which negotiations with the Republican Party will be completed. Experts believe that the White House will focus on negotiations with the Democrats, offering as a compromise the option of raising the corporate tax rate not to 28%, but to 24-25%. This fact may support the US dollar.
Technically, one can consider short positions from the area of 1.2000 in the medium-term period for the EUR/USD pair. We can assume that buyers will still attempt to attack the level of 1.20 this week, but it is unlikely that they will manage to consolidate in this price area. The first target of the downward movement is the lower border of the above price range – the level of 1.1940 (Tenkan-sen line on the daily time frame).
