The EUR/USD pair is gradually approaching the 13th figure, showing a decline for the second consecutive day. This dynamic is due to the growth of the US dollar index, which in turn reacts to the growth of the yield of treasuries. In general, the demand for the US currency is dictated by the strengthening of hawkish sentiment regarding the Federal Reserve's further actions. The rather strong January Nonfarm rates and the projected increase in inflation in the US suggest that the Fed will raise the interest rate at a very aggressive pace. In particular, there are rumors on the market again that the central bank will decide on a 50-point increase in March.
On the one hand, such hawkish assumptions may well bring down the greenback, if in the end it turns out that the Fed is more peaceful. Inflated market expectations are fraught with strong disappointment. But on the other hand, following the results of the January meeting, the US central bank was even able to "exceed the plan" by allowing an increase in the interest rate at literally every meeting. Therefore, at the moment, no options, even the most hawkish ones, can be excluded. And especially if the release of data on CPI growth in the United States comes out in the green zone.
It is noteworthy that the single currency is getting cheaper not only in pairs with the dollar, but also in many crosses – in particular, we are talking about such pairs as EUR/GBP and EUR/CHF. The euro is losing ground despite some fundamental factors that could theoretically have the opposite effect. For example, traders ignored the results of yesterday's meeting between the French and Russian presidents. Emmanuel Macron held almost six-hour talks with Vladimir Putin. At a joint press conference, the French leader said that he had offered the Kremlin "certain steps towards", which would probably allow finding a diplomatic solution to the geopolitical conflict. It is not known for sure what it is about, but in general, the parties stated that they managed to find "points of contact". According to the AFP news agency, Macron's proposals include the commitment of the parties not to start military operations, the beginning of a new strategic dialogue and the revival of efforts to resolve the situation in the Donbas.
The European currency ignored the results of the meeting. Traders also ignored the "coronavirus reports". So, despite the hegemony of Omicron, the Director of the Regional Office for Europe of the World Health Organization recently said that Europe will soon face a "long period of rest" in the fight against the pandemic. According to him, this is due to a combination of several factors – the arrival of spring, the high level of vaccination of the population and the relative "softness" of the new strain. Moreover, many European countries have already announced a significant easing of quarantine restrictions. In particular, Denmark became the first EU country to announce the complete abolition of COVID restrictions. Sweden and the Czech Republic have also weakened the quarantine as much as possible. By the way, the Czechs announced their decision on the same day when they broke the daily record for the incidence of coronavirus. Officials explained this by the fact that despite the increase in morbidity, the number of hospitalizations in the country has not increased.
The fact that EUR/USD traders have completely abstracted from European events suggests that the euro will follow the dollar in the foreseeable future. The optimism of market participants regarding the "hawkishness" of European Central Bank President Christine Lagarde evaporated, since this hawkishness actually did not exist: Lagarde at her press conference only did not refute the relevant assumptions. The unreasonable euphoria about this quickly and naturally faded away. The ECB is still accumulating liquidity and keeping rates at the current level. The possible steps of the central bank towards normalization/tightening of monetary policy are currently hypothetical. Meanwhile, the US Fed has clearly and unambiguously outlined its line: a guaranteed rate hike in March, further tightening of monetary policy, and the winding down of the balance sheet.
The prevailing fundamental background did not allow EUR/USD bulls to test the area of the 15th figure. The macroeconomic calendar for the pair is almost empty this week (with the exception of the US inflation release), and the euro ignores all other fundamental factors (geopolitics, coronavirus reports). It can be assumed that on the eve of the US inflation report, the dollar will continue to gain momentum, storming the 13th figure. If the main components of the release come out in the green zone, EUR/USD bears may swing to the nearest support level of 1.1330, which corresponds to the average line of the Bollinger Bands indicator on the D1 timeframe. It is advisable to go into short positions when overcoming the 1.1400 mark – today, throughout the day, bears are circling around this target, but they cannot break through it. Therefore, short positions will be relevant only when bears do push through this price barrier.
