The EUR/USD pair updated its next local high, following the results of the Fed's April meeting. During today's Asian trading session, the price was seen around the level of 1.2150. Afterwards, the upward impulse disappeared, and buyers were forced to retreat as part of a corrective pullback. Nevertheless, the EUR/USD bulls were able to occupy a new price level, indicating their claims to the 1.22 mark. At the moment, the main resistance level is located at 1.2180 (upper line of the Bollinger Bands indicator on the daily timeframe). The breakdown of which will open the way for buyers to the level of 1.22.
In general, the Fed voiced the usual rhetoric, only confirming its position on the prospects for monetary policy. Nevertheless, it was able to surprise the market by provoking increased volatility among the major dollar pairs. Apparently, traders were still hoping for the tightening of Powell's rhetoric, in the light of the latest releases. The recovery of the labor market, growth of inflation indicators, as well as the positive dynamics of many other macroeconomic indicators (retail sales, consumer confidence, the housing market, etc.) allowed the dollar bulls to rely on certain adjustments in the voiced rhetoric.
However, the Fed remained true to itself and this disappointed the supporters of a strong dollar. The regulator ruled out the option of early winding down of QE and was quite skeptical about the prospects for further growth in key economic indicators.
Jerome Powell stated that inflation indicators primarily increased due to temporary factors only. He emphasized that the episodic facts of a one-time rise in prices cannot be interpreted as a steady growth in annual comparison. According to the Fed Chairman, such impulsive dynamics will not provoke persistently high inflation, which will exceed the target level and consolidate above it.
During his press conference, the FRS head also reiterated his statement that the upward pressure on prices will only be temporary. In his opinion, such tendencies are inherent in the period of restarting the economy. But by the end of this year, this impulse may (and should) fade away, not to mention the prospects for 2022 and 2023. Against this background, Powell assured reporters that the Fed will maintain the pace of asset redemption until further progress is reached.
In fact, the regulator has announced once again that it is "too early" to talk about curtailing the stimulus program – the inflation growth is temporary and does not meet the Fed's standards that are applied when the parameters of monetary policy are tightened. At the same time, Powell reiterated that the US economy is still far enough to reach its main targets both in terms of inflation and employment.
As for the time targets, the Fed also disappointed investors. The Fed Chairman said that it will take some time to achieve significant further progress. Earlier in his speeches, Powell stated that the interest rate will be increased not earlier than 2023, while the stimulus program will be curtailed much earlier than this event. The market was previously focused on this plan for September next year, but rumors occurred in the market before the April meeting that QE will end in the spring of 2022. It can be seen that the head of the regulator did not refute, but did not confirm these assumptions, voicing a rather vague wording. This fact undoubtedly put pressure on the US currency.
On another note, the market actually ignored Joe Biden's speech in Congress. The US President confirmed that the White House intends to increase taxation for the "richest Americans" who earn more than $ 400,000 a year and who "increased their wealth during the coronavirus pandemic." Biden also said that his administration is going to get rid of loopholes that allow wealthy Americans (who earn more than $ 1 million a year) to pay a lower tax rate on capital gains.
Generally, the US President's speech was more political, so when talking about taxes, he initially expanded on the topic of social injustice, leaving out the specifics. But in fact, Joe Biden confirmed the information that was released by Bloomberg last week. Now that this information has gained official status, the US dollar will respond to the relevant comments of the most influential congressmen. Some experts believe that the announced plans to raise taxes may significantly increase the resistance from both all Republican congressmen and from some Democratic congressmen regarding the approval of Biden's infrastructure plan. If these assumptions are confirmed, the dollar will be under additional pressure.
From the point of view of technical analysis, the priority is still long positions. The main target in the medium term is the level of 1.2180 (upper line of the Bollinger Bands indicator on the daily chart). On the weekly and daily charts, the price is located between the middle and upper lines. In both cases, the pair is above all the lines of the Ichimoku indicator (including the Kumo cloud), which formed a bullish signal "Parade of Lines". This fact also indicates the strength of the upward trend.
