The assumptions about the growth of the main currency pair expressed in yesterday's review were fully justified. Therefore, there were some changes in the EUR/USD charts, which we will note in the technical part of today's article. In the meantime, a bit of the comment of the Fed and the ECB, as well as the reaction of market participants to them. Since the COVID-19 pandemic has not yet been ultimately defeated and will take an unknown amount of time, it makes no sense to change the monetary policy parameters right now. It was stated yesterday by the head of the Federal Reserve Bank of St. Louis, James Bullard. Lael Brainard, a member of the Open Market Committee, spoke about the spikes in inflation. In her opinion, this is a temporary phenomenon that will soon come to naught. Both Fed monetary officials confirmed earlier comments from Jerome Powell. And, in the current conditions, when the pandemic is not over yet, and the economy has not fully recovered from this shock, how can we begin to make changes in monetary policy in the direction of its tightening? Moreover, everyone knows about the sensitivity and caution of the Fed in these matters, and even in "peacetime."
What can we talk about then? About the current and very difficult coronavirus period? However, if we recall the Fed's leadership of Janet Yellen, then the market began to include in the price of the US dollar the process of raising interest rates long before the moment when rates started to rise. Such are the market realities. Investors always act ahead of such important events, which hints at a possible tightening of monetary policy. In this case, we are talking about the likelihood of reducing the volume of the quantitative easing program, which is possible in light of increased inflationary pressure in the United States. Although, according to many experts, the Fed will refrain from any changes in its policy in the current situation, and it is difficult to disagree with this.
As for the European Central Bank (ECB) colleagues, their attention is mainly focused on bond yields at this stage of time, which have declined in the last week, which primarily concern long-term government bonds. This factor may force the ECB to reduce the volume of asset purchases. However, this is also just one of the assumptions, which does not look like a much-needed measure in this pandemic period. The economic recovery in the United States and Europe is the main factor in both sharp inflationary jumps and changes in the yield of securities. The next June meetings of the Fed and the ECB will help clarify the situation more clearly, where the corner will be based on the comments of the heads of these departments on their further monetary exchange rate.
Daily
Now it's time to move on to the price charts. Considering specific changes that occurred after the close of yesterday's trading, we will start the analysis with the daily timeframe. So, due to yesterday's upward movement, the euro bulls still managed to raise the quote above the resistance level of 1.2244 and finish trading on Tuesday at 1.2249. This factor can be considered a reasonable bid for the continuation of the upward scenario. On the other hand, for one (albeit daily) candle closed above such a significant and strong level, which is 1.2244, it may be too early to judge its true breakdown. It is necessary to fix another, and preferably two daily candles, above this mark. The EUR/USD pair started today's trading with a continuation of yesterday's rise. However, the pair has not yet risen above yesterday's maximum values of 1.2266. Since today's economic calendar for EUR/USD does not contain any significant events, the price dynamics of the euro/dollar will be determined following the technical picture and market sentiment.
Trading recommendations for EUR/USD:
Yesterday's close above the resistance level of 1.2244 makes buying this instrument the main trading idea. However, since only one daily candle has closed above this level, it is still not worth completely excluding a false breakout of the level of 1.2244. It means that sales can be quite relevant. And yet, I will start with the main trading idea, which is purchasing. I recommend looking closely at the opening of long positions on EUR/USD after short-term declines in the price zone 1.2240-1.2220 and the appearance of reversal candle patterns on the four-hour and (or) hourly charts. Purchases at lower prices can be planned after the same short-term falls in the price area of 1.2205-1.2185. Since the pair has already visited 1.2262 and started moving south at the end of the article, I believe it may be too late to sell. But if the euro bulls again attempt to raise the quote above 1.2250/60 but fail to do so, as a result of which a reversal candlestick signal appears on lower timeframes, you can try selling. However, it is better with small targets, close to the significant level of 1.2200.
