In recent sessions, the markets have seen a rise in the dollar, due to the calendar factor. However, the ascent does not go beyond the corrective rebound. The pull in the US currency may be observed in the first days of the month, but judging by the downward movement towards the end of the Monday session, it could have already exhausted itself. This week, the dollar is in the spotlight. The trend to sell it is likely to be back in play.
So, let's try to understand the already existing fundamental picture and try to assume the movement of the US currency by the end of the week, when the final report on the US labor market – nonfarm payrolls report will be published.
According to the final data of the University of Michigan, consumer inflation expectations in the United States for the coming year were 3.4%, while the preliminary ones were different – 3.7%. Here, verbal interventions by Fed officials and the US government, which discard inflationary risks, could play a role.
It is not easy to believe in this, judging by the long-term and even record highs of quotes of metals and agricultural raw materials. It will take months for the purchase prices to hit retail. But looking at a strong recovery in demand, manufacturers are not hesitating to shift the costs to customers.
Housing is becoming more expensive, and rising prices are supported by a sudden commitment by Americans to better housing conditions, along with low rates and direct payments from the government. New checks for the population contributed to a sharp increase in consumer incomes. In March, it grew by 21% on a monthly basis. Extensive inflation is not yet observed, apparently due to the fact that households save this money, or invest in real estate or assets.
The US financial authorities can point to the experience after the crisis of 2008, when quantitative easing and fiscal stimulus did not lead to the formation of an inflationary spiral. At that time, the funds were used to pay off debts, but now, given the housing boom, they are being set aside for spending in the near future.
Thus, the dollar has no other choice but to decline further. Of course, there will be periodic bounces. And we are not just talking about a few days or weeks of growth associated with the technical oversold dollar. Longer upward movements are also possible, as was the case from January to March, when the Treasury was accumulating money for aid packages.
The Fed's policy plays against the dollar. The regulator did not give any hints about reducing the quantitative easing program, let alone raising rates. If the Central Bank does not change its plans, soft economic policy will remain a long-term factor in the decline of the dollar.
The dollar bears are on the side of strong data on the US economy for the first quarter. In addition, the weekly number of applications for unemployment benefits was reduced. The recovery of the US economy provides some guarantee for the recovery of the global economy, so the appetite for risk purchases continues to prevail in the markets. Naturally, against this background, interest in protective assets weakens.
Now, the focus of traders is set for Friday's publication of nonfarm payrolls. If the data on the state of the US labor market impresses the markets, the dollar is waiting for another wave of sales. Sellers can push the US currency index to the area of 90.00.
As for the EUR/USD pair, Friday's decline was not developed further. The quote not only held above 1.2000, but also showed a rebound to 1.2070. It is worth noting that growth and stabilization above the level of 1.2064 will return buyers to the market.
It is unlikely that the downward movement of the euro will continue this week, there are no justifications. US Treasury placements are not scheduled for the next few days, and the dollar did not strengthen much, taking advantage of the end of the month factor. In addition, America benefits when strong economic growth is observed against the background of a weaker national currency.
The EUR/USD exchange rate is expected to grow this week, but it is still unlikely to update the peak mark of April 23 - 1.2149. The most likely scenario for the coming sessions is a local sideways move. The dollar may strengthen next week, when a new series of Treasury debt placements takes place, which will put pressure on the EUR/USD pair.
