The Fed's dovish remarks calmed down investors. They seemed to believe that the regulator would not hike rates in the near future. The US dollar faced strong selling pressure ahead of the FOMC Meeting. Risk sentiment is creeping back to the market. This is why the greenback is likely to decline further.
In recent sessions, the US dollar index sank below the 200-day average. It indicates the shift of the sentiment to the bearish one. Currently, the US currency remains weak. Yet, bulls may take the upper hand but there should be new catalysts for growth. Now, there are none.
However, everything changes very quickly in the markets. Today there is one trend, tomorrow the other one prevails. For now, we need to focus on what we have. For the time being, the downward movement remains strong. The US dollar index is unlikely to face important technical support up to 89.70.
On Thursday, US retail sales data for March and weekly unemployment data are released. They can slightly change the trajectory of the greenback and increase volatility. Markets expect retail sales to rise by up to 5% compared to February's reading of -2.7%.
A weak dollar is beneficial for major reserve currencies. However, they cannot take full advantage of the US dollar's decline. The euro failed to consolidate above 1.2000, while the pound sterling did not grow above 1.3800.
GBP/USD has been trading around the 1.3800 level for several months. There are chances that I may move higher to 1.4000 but something is constantly interfering. Now the activity of buyers and sellers of the pound sterling is approximately equal. So, one side tries to pull the blanket over itself but fails. For this reason, it is very crucial to choose the right direction – to open long or short positions. After the release of a series of macroeconomic data in the United States, the trend may become clearer. The US dollar may still gain momentum despite positive expectations of the rapid recovery of the British economy after the pandemic.
The US currency is slightly strengthening across the board. This is one of the reasons why the pound sterling failed to stay above 1.3800. The GBP/USD pair is trading sideways between the support level of 1.3725 and the resistance level of 1.3800. Market players have taken a wait-and-see approach as they are waiting for the quote to break out of the sideways range. In the next session, the pound sterling is likely to trade within the range of 1.3680–1.3870.
The buyers' target is located at 1.3845. If they manage to push the quote to this level and above, then the GBP/USD pair may rise higher. If the pound sterling consolidates below 1.3800 before the end of the week, it will continue to decrease.
The euro is under pressure due to problems with the vaccination pace in Europe. The EU will receive 50 million doses of Pfizer's vaccine in the second quarter. At the same time, the use of the Johnson & Johnson vaccine has been paused due to blood clots. Denmark has stopped using the AstraZeneca vaccine and other regions may follow suit. There are no fundamental reasons for the growth of the EUR/USD pair. Yet, there are plenty of them for its decline.
Apart from the slow pace of vaccination, the euro area has many other pressing issues to address, e.g. political troubles in Germany. Armin Laschet, the elected leader of Merkel's CDU party, did not have time to prove himself. Nevertheless, Bavarian Prime Minister and CSU leader Markus Seder have already questioned his decisions. Angela Merkel steps down as a chancellor. After her departure, CDU/CSU bloc will decide on its top candidate for the 2021 general election.
Despite the upward trend that began at the end of March, the pair was unable to break strong resistance at 1.1990. The euro is entering the overbought zone, which may signal a future downward correction.
When the US dollar finally picks up a trend, it may seriously affect the euro. The US dollar may resume its upward movement. There are reasons for it.
Jerome Powell's recent remarks have not come as a surprise for investors. At the same time, the hints about the reduction of the QE program may become a kind of signal for speculators. One of the members of the Fed hinted that such a step would be announced at the following meeting. The regulator will also unveil a revised outlook. The next meeting will be held in June, which means that the reduction in the Fed's quantitative easing program is likely to occur at the end of the year.
Notably, the minutes were released just before the retail data. In mid-March, Americans have received checks from the government. Some of them could have been spent immediately. US retail sales data may exceed market expectations. The jump in retail may boost the US dollar's growth.
