The economic activity on both sides of the Atlantic is progressing, with Markit's PMI indexes released on Friday showing higher-than-forecast growth in the US, UK and Eurozone. The data indicate a positive effect on the lifting of the COVID-19 restrictions. In addition, the expansion of vaccination will contribute to the growth of activity in the coming months.
Stock indexes generally maintain their growth trajectory, and global yields have also resumed growth after a period of downward pullback. All this points to a steady demand for risk, which gives reason to expect the growth of commodity currencies in the short term.
The US dollar is under pressure, which is largely political. Biden's proposed $ 2.2 trillion infrastructure support plan has every chance of being seriously adjusted downwards, as several Democratic senators unexpectedly joined the Republicans who proposed a counter plan for only $ 600 billion. Since the dollar's growth in the past few weeks has been largely driven by expectations of a positive effect from large-scale stimulus measures, the emerging situation will put bearish pressure on it.
On April 28, Biden will present the next part of the plan to reform the economy to Congress, which implies an increase in the maximum tax rate to 39.6%. US stock indexes are waiting for the tax increase with disapproval, and if it does happen, the indices will go into a deep correction. The uncertainty is also putting pressure on the dollar.
At the same time, the Fed will hold a meeting, which is expected to be ignored. However, Powell's press conference is not an ordinary event, which may lead to an increase in volatility.
EUR/USD
As expected, the results of the ECB meeting did not contain any surprises. The ECB confirmed rumors circulated the day before that asset purchases in the second quarter will proceed at a much faster rate, and refrained from forecasting purchases for the third quarter.
Christine Lagarde evaded answers on the topic of purchases from the 3rd quarter during the press conference. Markets tend to regard Lagarde's silence as unwillingness to provoke a rise in the euro, since admitting that it is ready to start cutting in Q3 will be equivalent to announcing an increase in yields in the euro area.
The CFTC report showed that the euro sell-off has stopped, the net long position on the euro has risen to a one-month high, and the simultaneous increase in the yield spread has led to the settlement price resuming growth. All this points to the continuation of EUR/USD growth in the near future.
On Monday morning, the euro broke through the level of 1.21 and reached the upper limit of the descending channel. There are attempts to further rise, which may be triggered by an insufficiently strong report on orders for durable goods in the US in March that will be published today.
It can be assumed that the growth is more likely to continue, and the euro will try to rise above the resistance level of 1.2240 in the coming days, which will mean readiness to resume active growth.
GBP/USD
Britain continues to publish optimistic reports that are in line with expectations of a faster economic recovery. In March, the volume of retail sales increased by 5.4%, with an annual growth of 7.2%. The trend is positive.
The pound's current growth is fundamentally justified, but there is a strong political risk. On May 6, elections will be held in Scotland, which will give an answer to the question of Scotland's readiness to leave the UK. If the ruling party wins, it will initiate the exit process.
The estimated price went above the long-term average, which indicates a strong growth potential.
We expect that the strong resistance of 1.40 to decline in the next few days and the pound to further rise to the February high of 1.2202.
