The euro-dollar pair is at a crossroads – between the 11th and 9th figures. Last week, neither the bears nor the EUR/USD bulls were able to fulfill the "minimum program". Bulls could not keep the height above 1.1100, while bears did not pull the price below the target of 1.1000. And although a bearish mood prevails for the pair, the downward momentum actually faded at the end of last week. Traders began to take profits at the end of Friday trading, thereby reducing the pressure on the pair. However, this does not mean that the EUR/USD bulls have seized the initiative – the vector of further price movement has not yet been determined. Much will depend on the geopolitical background, the "color" of which depends on the dynamics of the negotiation process between Russia and Ukraine.
If we talk about macroeconomic factors, the upcoming week is not eventful. The minutes of the last Federal Reserve meeting, which will be published on Wednesday, April 6, are of particular interest. Let me remind you that the Fed's March meeting was not dovish, although after the announcement of its results, the dollar sank throughout the market. Of course, traders expected a more aggressive attitude from Fed Chairman Jerome Powell, but in general, the US central bank did not abandon its plans for a systematic tightening of monetary policy. Moreover, after the March meeting, some Fed members made it clear that the central bank is likely to consider the option of a 50-point increase at the May meeting. The minutes published on Wednesday will allow us to assess the overall mood of the Fed, in the context of the latest inflation data.
The same can be said about the minutes of the last European Central Bank meeting, which will be published on Thursday, April 7. On the one hand, the ECB has accelerated the issue of early curtailment of QE. On the other hand, ECB President Christine Lagarde made it clear that the central bank will not rush to raise rates after curtailing the asset purchase program. This is an important signal that has put additional pressure on the single currency. If the ECB minutes reflects the dovish advantage in the central bank's camp, the euro will be under additional pressure, despite the record increase in inflation in the eurozone countries.
Also next week (Tuesday, April 5), PMI indices will be published in Europe (the final estimate for March). First of all, we are interested in German and pan-European indicators. Initially, the PMI indices came out in the green zone, although they reflected a slight decline relative to February. The vast majority of analysts expected a deeper decline – both in the service sector and in the manufacturing sector. The final assessment of these indices may be revised downwards, taking into account the "gas issue" and geopolitical instability. If the indices come out in the red zone (which is quite likely), the single currency will be under pressure again.
However, all of the above fundamental factors are secondary – "auxiliary" – in nature. The tone of trading will primarily be set by geopolitics. Therefore, EUR/USD traders will be focused on the negotiations between Russia and Ukraine. The head of the Russian delegation, Vladimir Medinsky, said that work on agreeing on the text of the future Ukrainian-Russian treaty at the level of experts and heads of delegations will resume on Monday, April 4. According to him, the details of the agreement were discussed in the previous days – on April 1 and 2.
In other words, negotiations in the remote format will continue tomorrow, but already now we can talk about some outlines of compromise positions. According to Medinsky, at the moment there are a number of pre-agreed issues. These are the neutral non-aligned nuclear-free status of Ukraine, the ban on foreign military bases, the refusal to deploy foreign troops and any offensive strike missile weapons, the development and production of weapons of mass destruction, conducting exercises with the participation of foreign troops only with the permission of the guarantor states, including Russia, as well as the creation of a system of international security guarantees for neutral Ukraine. As the head of the Russian delegation noted, all these agreements were reached in Istanbul.
But here it is necessary to emphasize that the parties have not found a common denominator on all points of the future agreement. Therefore, the parties do not yet see prospects for an early meeting between Vladimir Putin and Vladimir Zelensky.
It is obvious that the rhetoric of the representatives of the delegations will determine the degree of anti-risk sentiment in the foreign exchange market. The parties will have to work out the final stage of those issues that they have already touched on and on which it is still necessary to work out a compromise position. If the negotiations "stall" again, the dollar will begin to gain momentum as a protective tool. And vice versa – optimistic theses will allow EUR/USD bulls to go on the counterattack again.
But given the fact that the parties are rather sparingly commenting on the negotiation process, it can be assumed that the dollar will gradually strengthen its position next week – including in a pair with the euro. In addition to geopolitical factors, macroeconomic reports are also on the greenback's side (inflation growth against the background of a decrease in unemployment in the United States) and increased hawkish expectations regarding the Fed's further actions (rumors are growing in the market that the central bank may decide on a 50-point rate hike at the May meeting).
Thus, in my opinion, short positions on the EUR/USD pair remain a priority. The first downward target is the 1.1000 mark (the average line of the Bollinger Bands on the D1 timeframe). The main goal is the 1.0950 target. This is a fairly powerful level of support, which the bears could not overcome in March, despite repeated attempts.
