The Euro, barely gaining heights, slowed down. This allowed the US currency to temporarily bypass its rival in the EUR/USD pair. However, this did not let the dollar return to its entire dominance. Today, the attention of the market is focused on the upcoming speech by Jerome Powell, waiting for the reaction of both currencies to the regulator's decision.
The problem in the current situation is that the markets, in general, do not rely on Fed's extreme changes. Many analysts and traders believe that nothing new will be heard that can significantly change the EUR/USD dynamics. According to experts, the cost of the US currency already includes the Fed's measures to ease monetary policy and maintain interest rates at the current level. Most analysts believe that this situation will remain unchanged for a long time.
Denying extreme changes did not come out of nowhere. This was already previously stated by the regulator's management, wherein they also admitted that a slight increase in the target inflation rate is possible, even without tightening it. However, the possibility of a favorable scenario cannot be ruled out. If the Fed refuses to keep a soft monetary policy, investors can start fixing short positions in the dollar. Although this is unlikely to be widespread, it can weaken the already shaky position of the dollar.
According to analysts, the USD will remain under pressure in the near future. Its decline currently stopped a bit, but the negative trends may outweigh it. Nevertheless, the dollar is trying to accelerate and bypass the Euro, which has slowed down. Now, the EUR/USD pair is gaining some volatility, as it awaits the speech of J. Powell. On Thursday morning, the pair moves around the range of 1.1832-1.1833. After that, it declined slightly to the levels of 1.1828-1.1829, but is trying to leave this range.
The European currency has been at the peak of its potential for a long time, conquering new heights. However, the US dollar got a head start before the speech of the Fed's head. Therefore, the euro has no choice but to wait for this unfavorable time to pass and gather strength for a further rise. Analysts say that the prospects are quite favorable for this single currency. In this regard, specialists of the Bank Mitsubishi UFJ Financial Group of Tokyo-Mitsubishi UFJ (MUFG) allow the euro to further correct with a bias to an upward trend, although they previously predicted its entry into a downward turn. The reason for this was positive data on the unemployment rate in Germany, namely the extension of the job support program until the end of 2021. According to analysts, this indicates the recovery of the German economy after the COVID-19 which is also in favor of the Euro.
Currency strategists at Nordea Bank also support the upward trend of the Euro. They are confident that this currency will turn on a mode of upward activity, but we should not expect it to be accomplished in the near future. According to experts, Euro will not be able to overcome the barrier of 1.2000, since now is not the time to conquer these peaks. At the same time, such drivers of dollar's weakening as the double deficit of the US, which contributes to the growth of the EUR/USD pair to 1.2600 in 2021, continues.
On the other hand, market participants have not enough new catalysts for the productive dynamics of the classic pair. At the moment, the net longs of many traders remain at the limit, and for the "bulls", this situation is not the best. The problems associated with a significant gap in the recovery of the US and European economies also worsened the situation. So, it can be concluded that the current situation does not add optimism to either the US or European currencies.
Nordea Bank believes that the ECB is one of the reasons why the euro is gradually strengthening. The bank admits that the regulator is capable of more decisive actions for a fast economic recovery, particularly, the launch of an expanded asset purchase program. At the same time, the ECB restrains the excessive growth of the single currency, leading to such slowdown.
