Well, in spite of some re-emerging factors the single European currency continues its systematic decline against the USD. In this regard, it remains to be reminded once again of the main aspects of the current situation. Although European Central Bank (ECB) governors have noticeably tightened their rhetoric recently, this is not helping the single European currency and the US dollar to get off the bottom. As is already known, the ECB is planning to end its bond purchasing programme by the end of the second quarter of this year. After that, the European regulator is likely to start the process of raising interest rates in the eurozone in late summer. It is a little strange that the market has barely reacted to such more hawkish plans by the ECB. Of course, the US Federal Reserve (Fed) is ahead of the curve in terms of monetary policy tightening, at least in terms of statements and intentions. The markets now expect the Fed to raise the federal funds rate by 0.75% at the May meeting instead of 50.
Appetite comes with eating. That is how market expectations should be interpreted. However, there remains the possibility that the US dollar will become a hostage to these very overinflated market expectations. However, this is not yet the case. Another two important factors that support the US currency as a defensive asset are the strict quarantine measures in China, which authorities were forced to introduce due to the outbreak of a new wave of COVID-19. However, the outbreak is an understatement. The Chinese authorities need only a few infections to declare a lockdown in cities with a population of millions. They are being very tough and aggressive there. Nevertheless, the situation in China could have a negative impact on an already unbalanced supply chain. This does not bode well for the global economy. Another important factor that fuels demand for the US dollar is Russia's military special operation in Ukraine and the lack of real progress in normalizing the situation.
Daily
In yesterday's trading the main Forex currency pair continued its downward trend and closed Tuesday's trading at 1. 0635. Thus, the assumption that there will be a struggle around the important and significant technical mark at 1.0700 has not yet been confirmed. The forces are now clearly unequal. Nevertheless, EUR/USD is trading near 1.0626, which is not too far from the 1.0700 level. The ECB president Christine Lagarde will give another speech today. Maybe this speech will be some kind of brake on further depreciation of the euro and limit it. With markets reacting weakly to the ECB chief's speech, there is little likelihood that the euro will get support from Lagarde's speech. Although, if the ECB head deigns to deliver a more hawkish rhetoric, a bounce to 1.0700-1.0745 is possible. In any case, to open short positions in EUR/USD you have to wait for at least some kind of correction. At this stage of trading, I recommend waiting for a corrective pullback to 1.0685, 1.0700, 1.0720 and 1.0745 and then considering opening short positions on EUR/USD. In my opinion, selling at the very bottom of the market without waiting for a corrective pullback can be quite risky, even though the bearish trend is quite strong and gradually gaining momentum.
