Both EUR and GBP are losing ground against USD amid moderate growth of US Treasury yields. The yields are recovering as market participants are confident that the Federal Reserve will prove its flexible approach to monetary policy, even though the US economy is about to revive to pre-crisis GDP rates.
"We will warn you in advance"
As I mentioned in my morning review, a batch of macroeconomic data is on investors' radars this week. As for the Fed's policy meeting, the regulator is widely expected to maintain the settings on monetary policy unchanged. The Fed is due to unveil a policy update on Wednesday.
One more thing. Even though the American central bank puts the official funds rate on hold, it is likely to announce tapering of its monthly bond purchases to the total amount of $120 billion. The Fed is expected to scale back its bond buying until the end of the year. Robust economic growth in the US in the wake of the COVID-19 pandemic could pump up inflation and cause overheating of the economy. Hence, the US regulator is going to keep close tabs on such developments. In a survey in March, economists projected the US Fed to maintain bond buying at the same rate for long. Besides, most experts shared the viewpoint that the first rate hike could happen not until 2023. Importantly, on Wednesday, Jerome Powell might have the second thought and revise his agenda, though he is unlikely to hurry up with the first rate hike.
According to the latest poll, 45% of economists project that the FOMC will announce tapering of the asset buying program in Q4 2021. 14% of pollees reckon this could happen in Q3 this year. So, investors are looking forward to Jerome Powell's comments during the press conference, looking for clues as to whether the regulator could scale back stimulus measures earlier than expected. Throughout 2021, the Fed's leader reiterated that the regulator would warn the market long before actual changes. The thing is that changes will be introduced provided that the rate-setting committee will see that the US economy achieves the targets on GDP, inflation, and employment.
EU sues AstraZeneca
Today market participants found out the news with the startling headline. The EU has filed a lawsuit against AstraZeneca. The news is not about the lawsuit due to safety concerns of its vaccine. The EU authorities are suing the British drugmaker because of its non-commitment to the contract for the vaccine delivery to EU countries. At the press conference, the EU representative stated that some of the contract obligations had not been fulfilled properly on AstraZeneca side as the company failed to work out a reliable logistic chain to ensure non-stop deliveries.
European Commission President Ursula von der Leyen tweeted: "Vaccination has helped us beat many diseases. Today, at the start of European Immunization Week, we reached 129 million vaccinations in EU. We'll have enough doses to have 70% of adults vaccinated in July."
Amid the fundamental background today, EUR lost some steam following the IFO business climate report for Germany. The business confidence index improved slightly in April with the actual score worse than expected. This is directly related to restrictions on businesses due to the coronavirus pandemic. Such lockdown measures were in force across the country in March – April. Complicated supplies are also to blame for the downbeat morale among German entrepreneurs. IFO experts said that the business confidence index inched up to 96.8 in April from 96.6 in March, much weaker than expected 97.8. All in all, experts warn that Germany's economy has to face a tough challenge in the first half of the year. Analysts expect to see the green shoots of recovery not until Q3 2021. The current assessment index came in at 94.1 versus 93.1 in the previous month. The forecast was for 94.4. At the same time, the index of economic expectations declined to 99.5 from 100.2 from a month ago. The economists had projected the indicator at 101.3.
The technical picture of EUR/USD has not changed a lot since a failed attempt of the buyers to push ahead with the uptrend. The bulls have an important task to protect support of 1.2090 because it will determine further developments. If the currency pair closes below this level on Monday, the bears could regain control over the market. In this case, risky assets will come under pressure that will push EUR/USD towards 1.2050, the middle of the sideways channel of the last week. If the price breaks out this level and sinks even deeper, this will terminate the bullish prospects of EUR/USD. Alternatively, if the buyers manage to protect support of 1.2090, traders will shift focus towards US economic data. It will be difficult to predict the market response to this data. If resistance of 1.2140 is broken, EUR/USD will be able to climb as high as 1.2190 and even to 1.2240.
GBP
Today the pound sterling has made some attempts to grow from 1.3892. Eventually, the buyers had bad luck. GBP reinforced in the European session on Monday. Bank of England Deputy Governor Ben Broadbent noted that the UK economy is set for a very rapid recovery at least in the second half of the year. Though his remarks did not come as a surprise, GBP responded with optimism to his interview at Telegraph. Broadbent said in the interview that there has been "less of a disinflationary effect" as households have also switched spending into other areas. The UK evidently can boast its progress in the mass vaccination as more than half of the population had been provided with at least one jab of the vaccine. The UK economy is going to forge ahead with gradual lifting lockdown measures. So, traders have weighty arguments to increase long positions on the pound sterling.
When it comes to the technical picture on GBP/USD, a further situation will depend on who will manage to grab the level of 1.3890. If the bulls win over this level, I foresee a further growth of GBP/USD towards highs at 1.3945 with prospects to climbing back to levels above 1.4000. Alternatively, if the bears manage to push the pair below 1.3890 at the end of the day, GBP will come under pressure ahead of a policy meeting of the Federal Reserve. This will lead to a plunge of the trading instrument towards lows at 1.3835 and 1.3790.
