The European currency finally collapsed. In principle, a correction was brewing, as the euro/dollar pair was in an upward movement for almost a month, during which there was no single sensible correction. It is important to understand whether this will be a correction or whether the pair will try to resume its downward movement. We believe that with a probability of 70-80%, this is a correction, after which the upward movement will resume. Our arguments are simple and do not change as each week passes. Unfortunately, global factors continue to work, which continue to devalue the US currency. We are talking about the same factor of inflating the US money supply due to endless and voluminous stimulus packages and the QE program from the Fed. There is more money, so the dollar continues to fall in the long run. Recently, from our point of view, there has been another important factor that can influence the movement of the pair. It is a factor in the faster recovery of the American economy compared to the European one. In principle, this factor has been lying on the surface for several months. However, at the end of the first quarter of 2021, we can confidently say that the American economy has overtaken the European one in terms of recovery in absolute terms. Recall that in the second quarter of 2020, US GDP lost 31.4%, and in the first – 4%. Thus, these losses provided a long time lagging behind the European economy, which shrank by only 11% at the beginning of the pandemic. However, now the European economy has been stalling for many months in a row, and at the end of the first quarter of 2021, it began to shrink again. But the American one is growing by leaps and bounds. Although it is better to say "growing on the money." Thus, it becomes more attractive for investment. However, we still believe that pumping the US economy with money is more important and will continue to put pressure on the dollar.
By the way, there are no other particularly heartwarming topics for the US currency or the euro right now. The European Union has been talking for several weeks about the Economic recovery fund, which should finally be distributed this summer. However, how can this topic affect the movement of the euro/dollar pair now? There is more interesting information in the States. There are a lot of new issues related to taxes. Significant changes in the tax code are coming, which will also be aimed at increasing tax rates for the rich and corporations and working on the introduction of a single global corporate tax. Recall that Janet Yellen and Joe Biden have already talked several times about funding new stimulus packages for the economy at the expense of rich Americans and rich corporations. And the US Treasury Secretary also initiated a single corporate tax to ensure that large corporations do not flee from countries with high tax rates to countries with low ones. Thus, the US government will do everything to "strip" millionaires, billionaires, and large companies as much as possible in the near future. And here the question is, what will all these millionaires and multi-corporations do? Of course, you can increase the price of your products.
Then, in the final version, all the increased taxes will be paid not by the rich but by ordinary people, for whom the prices of goods will rise. The second option is to go into the shade. The third option is to leave the territory of the United States in legal terms. However, in any case, some actions will be taken by rich Americans and companies. Of course, the bill is still at the discussion stage, and it is already facing complete denial from the Republicans. And according to unconfirmed information, some Democrats are also opposed to raising taxes. However, the Democrats can be persuaded. And no one is interested in the opinion of the Republicans right now since they are a minority in both houses of Congress. By the way, it should also be noted that we are currently talking about two packages of incentives. The first will be completely social, with payments from it going to free preschool and secondary education, tax cuts for low and middle-income families, and support for older Americans. The second one is infrastructure. According to rumors, the first package will be equal to $ 1.8 trillion, the second - $ 2.25 trillion. Thus, another $ 4 trillion will potentially be poured into the economy. It is good that this time we are talking about forming these packages by raising taxes. However, it should still be understood that the US authorities are unlikely to collect $ 4 trillion in taxes in a couple of months or even a year. Therefore, most likely, this money will be taken out of nowhere again and then returned for many years at the expense of tax revenues. It is also worth noting that the US authorities are trying to prevent China from approaching them economically with these stimulus packages. The President and representatives of the US Congress have openly called China the main strategic enemy in the international arena.
Trading recommendations for the EUR/USD pair:
The technical picture of the EUR/USD pair on the 4-hour chart is unambiguous. The upward trend is visible. As well as the correction against it. Thus, at this time, you should wait for the correction to complete and then resume trading for an increase. We believe that the correction will be short-lived and may end near the Kijun-sen line or the Senkou Span B line. If the price is fixed below the critical line, we can discuss the resumption of the downward trend, although this option now contradicts global fundamental factors.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
