A delicate equilibrium is emerging on the stock markets, but this should not hinder the upward dynamics of the dollar index, which adds seven out of the last nine sessions. The fundamental picture is on the side of the USD. From the point of view of technical analysis, the greenback should also continue to rise. The US dollar has crossed an important line in relation to six main competitors, which increases the likelihood of impulsive growth in the near future.
The dollar index passed the level of 93.00. Now buyers are gradually building up their strength in this area. If no obstacles appear in the ascent to this area, the US dollar has every chance to pass the level of 93.60. The next target will be 94.00, then dollar bulls will start looking at 94.70, but this is a more distant target.
As analysts at Bloomberg note, the dollar index is about to form a bullish pattern known as the "golden cross". If it succeeds in this maneuver, then in the second quarter it will be possible to count on the continuation of the upward trend in the USD. Experts also drew attention to the fact that the formation of the "golden cross", as a rule, "is accompanied by a short-term increase in fluctuations in the dollar, and sometimes a reversal of the market," which must be taken into account.
The traditional "safe havens" – the Japanese yen and the Swiss franc, which are updating multi-month lows, looks the most pessimistic with the upward dynamics of the dollar at present. The Japanese yen against the dollar reached the target decline around the 110 mark.
The capture of the 109.80 mark by the USD/JPY buyers put the 110.30 area under the blow. The next target is the level of 110.50. Further, with the support of the upward dynamics of the dollar, the zone 111.30 can be broken, analysts at Commerzbank comment.
For a downward trend to form in the USD/JPY pair, the level of 109.30 must be supported. In the meantime, analysts remain bullish.
The dollar as a safe-haven asset is now leading the way everywhere, as accelerated vaccinations in the US and expectations for another major stimulus package have fueled inflation expectations and boosted Treasury yields.
If the yield of US government bonds continues to grow, the dollar will strengthen its growth. Credit Suisse expects this figure to eventually reach 2% in the long term. Although there are risks of a short-term pullback in the second quarter. The 1.82% area is likely to be a strong barrier.
The euro is now also suffering from the strength of the dollar, but to a lesser extent than defensive currencies like the yen. America and Europe plunged into a crisis at the same time, but the US looks less miserable. The economic recovery in all indicators is progressing here at a faster pace. Of course, this is reflected in the decline in the EUR/USD pair.
Quick recovery of indicators to pre-pandemic levels, together with rising inflation, will lead to an earlier than expected increase in US rates. At the moment, a tightening of policy in 2022 is predicted by only four members of the FOMC. By the end of the year, with the progression of economic growth, the situation may change. As you know, the rate hike will spur the dollar's growth more strongly.
The EUR/USD bulls seem to be aiming for the 1.1600 mark. This is the support of September and November of last year. If it is broken through, traders will see a round intermediate level and, concurrently, the maximum of March last year at 1.1500.
