The dollar fulfilled and even exceeded growth plans, but this does not mean that the rally is over. The US dollar index is under pressure after hitting new highs in the 99.80-99.85 area and could face some downward pressure in the coming sessions. After a while, it will again continue the upward trend. The nearest major resistance is at 100.00, followed by the May 2020 high at 100.55.
Recall that the US currency is supported and will continue to be provided by tougher rhetoric of Federal Reserve officials. According to Lael Brainard, the central bank is ready for a lot, including an accelerated reduction in the balance sheet, which reaches $9 trillion. The corresponding decision can be made at the May meeting. Earlier in January, a survey showed that market participants were expecting a $2.5 trillion balance sheet cut.
The European Central Bank has also begun to actively think in the direction of normalizing monetary policy. The minutes of the last meeting published the day before are formal proof of this. Members of the ECB believe that the current situation with inflation requires immediate intervention.
The euro has been hit hard this week, and it's not just the strong dollar that's to blame. Now the question arises: will the European currency be able to stop the fall after the release of hawkish ECB minutes?
On the one hand, members of the central bank seem to be determined. On the other hand, it seems that not everyone shares this point of view and there is a certain imbalance of opinions in the ECB. Chief Economist Philip Lane is confident that one should not overreact to a surge in inflation.
Probably not. Support, if any, is limited. The euro is under serious pressure from geopolitical events after March 10, and this outweighs the ongoing positive from the ECB.
It became known that the EU plans to postpone the ban on the purchase of Russian coal for a month. Previously it was July, now August has come into play. Be that as it may, this did not provide much support for the euro.
Traders keep another factor in mind - the divergence in policy between the ECB and the Fed, which continues to widen as the economy of the eurozone faces an increased risk of recession amid the Russian-Ukrainian crisis.
The EUR/USD pair closed five consecutive sessions with a fall. Has the bottom been reached or is there still more to come? Judging by the fact that the quote has not been able to demonstrate a convincing rebound, the euro will continue to trade at weak levels with the risk of updating recent lows.
The downtrend line that appeared at the end of March remains unchanged. Bears should retain control until the pair stabilizes.
The 1.0870 static level acts as temporary support, followed by 1.0850, and then comes the psychological level of 1.0800.
Resistance is noted at 1.0920, 1.0950 and 1.1000 (psychological level).
The movement of the USD/CAD pair looks quite interesting now. The Canadian dollar is falling against its US counterpart, having recently tested support at 1.2400. On Thursday, the pair has been quoted above 1.2500 since the opening of the day. There will be more to come. The aggressive rhetoric of the Fed officials brought back bears of the Canadian currency to the markets.
On the one hand, the loonie looks hopeless, on the other hand, the forces for the fight, and most importantly the foundation, are also available. First of all, it is worth noting high oil prices, which significantly improve the trade balance of the Canadian economy. Since oil has every chance to continue rising against the backdrop of a continuing shortage of supply, the Canadian dollar will keep the interest of bulls in the long term.
On Friday, traders will analyze the data on the Canadian labor market. In the event of optimistic data, markets will be pawned for further rate hikes by the Bank of Canada. With this development of the scenario, short positions on the USD/CAD pair towards 1.2400 will become relevant.
