Fundamentally, the dollar looks weak. Arguments in favor of its further decline have been listed for several weeks. If last week a deeper sinking of the dollar did not take place, in particular, due to large placements of the US Treasury, then it is quite possible to fall to new lows this week. The next few sessions are exempted from bond placements.
It is worth noting that the marks of 89.00–90.0 points serve as a kind of support for the American currency index, which is quite efficient. Despite the increased pressure, the dollar does not fall below. Yes, the American dollar is weak, but in order to gain more arguments in favor of further weakening, you need to look around and carefully study what is happening. Not everything is so simple here, some statements of the FRS members caused some distortions in the markets. And yet, the US Central Bank in the near future may begin substantively talking about the beginning of the reduction of quantitative easing.
Such a signal the day before came from the vice-chairman of the FRS, that is, from the very center of the American regulator. Richard Clarida put it this way: "There will come a time in upcoming meetings, we'll be at the point where we can begin to discuss scaling back the pace of asset purchases." Further, as echoes of his words were the inflation data on consumer spending (PCE), the insane spike in the consumer price index has been repeated. What does it mean? Perhaps a statement about plans to reduce QE will be announced at the June meeting of the FOMC.
Real estate in the USA is becoming more expensive at alarming rates, which provokes comparison of the current situation with the period of 2006-2007. After the coronavirus crisis, it was not enough to get into a mortgage. At least some kind of reaction is now expected from the Fed.
Expectations of hints of at least some action support the dollar a little, at least they are able to keep it from falling deeper. At the same time, the technical picture in the dollar index on the weekly time frame indicates the possibility of a double bottom formation around 89.00 points.
It is difficult to say whether this attempt will be justified. We'll all find out about it in June. In the meantime, analysts advise to slightly reconsider their attitude to the dollar and at least reduce aggressive sales of the American currency.
The news background around the dollar is mostly negative, and the dollar itself is overloaded with shorts. This all suggests that if the trend is reversed, then it is in favor of a short-squish in the medium term. First of all, this applies to the dollar's shorts against the European currency.
So, the current levels of the dollar index correspond to 1.2200-1.2300 for EUR/USD, which is what we, in principle, observe. It is important to remember that these levels are also painful for the ECB. As soon as the euro approaches these levels, the regulator begins to actively express its concern about the rate.
The macroeconomic picture in the eurozone has recently been pleasing, but it cannot be called enchanting. Inflation is not growing as fast as in the United States, so the ECB can afford to push back the talk of phasing out stimulus to the far corner. However, the data on inflation for Germany, published on Monday, slightly excited the market. Annualized inflation in May peaked over the past three years.
Strong inflationary data supported the EUR/USD pair, and ideas began to emerge in financial circles that the ECB could react to the statistics with tougher rhetoric. It has become interesting, and now we are waiting for Friday with its important releases and performances.
Markets focus on data from the US labor market, which is expected to be strong. If the numbers beat economists' forecasts, the prospect of scaling back stimulus policy in the United States will be more realistic. More forward-thinking players will start to gradually get rid of short positions in the dollar. If this does not support him, then it will keep him from further decline.
In the meantime, there is no talk about this, the Fed is taking a wait-and-see attitude, which means the dollar will remain under pressure.
