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13.04.2021 07:12 PM
EUR/USD. Irony: Strong inflation report coincides with gloomy news about Johnson & Johnson vaccine

The foreign exchange market sometimes brings unexpected and not always pleasant surprises when the fundamental background changes its color rather abruptly. A similar situation occurred today, playing a cruel joke with dollar bulls. Traders did not have time to win back sufficiently strong data on the growth of US inflation, as the information picture of the day was overshadowed by the news that the US authorities recommended suspending the use of the Johnson & Johnson vaccine.

Here we can talk about the evil irony of fate, since just a few weeks ago, Europe experienced a similar situation with the AstraZeneca vaccine. However, in fact, these comparisons are not quite correct. The current circumstances, of course, are similar, but only at first glance. Therefore, you should not trust the current upward momentum of EUR/USD: the price rises only on the decline of the US dollar index, which in turn decreases market emotions. Roughly speaking, the market reacted to the newspaper headlines, while ignoring the objective circumstances regarding the "disgraced" vaccine.

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In addition, traders ignored a fairly strong inflation report, although all components of the release were in the "green zone". Buyers of EUR/USD took advantage of the unexpected weakening of the greenback and are again trying to gain a foothold in the area of the 19th figure (this is at least the fifth attempt in the last week). This time, the upward momentum looks stronger, but the fundamental factor that provoked this volatility, on the contrary, is quite shaky and unreliable. Moreover, the ZEW indices published today were not in favor of the European currency, being much lower than the forecast levels. In other words, the current growth of EUR/USD looks abnormal and not entirely justified. But, as you know, the market is subject to emotions, and the current situation is an eloquent confirmation of this.

So, today, the relevant US regulatory authorities (the FDA and the Centers for Disease Control and Prevention) officially recommended suspending vaccination with Johnson & Johnson coronavirus drug "for safety reasons." In a joint statement, representatives of these supervisory agencies said that experts are currently checking cases of thrombosis in six women. The potential danger of the situation is that blood clots were formed against the background of a decrease in the number of platelets. In such cases, it is absolutely impossible to take heparin, which dilutes the blood and which is usually prescribed by doctors in such situations.

Let me remind you that a similar side effect was observed in the AstraZeneca vaccine, which was used (and is being used again) in European countries. Due to this, Europe was actually forced to suspend vaccination.

And here it is necessary to note the first serious difference between the "European" situation and the "American" one. The fact is that most of the vaccine supply in the US comes from two other manufacturers — Pfizer and Moderna, which together supply almost 25 million doses of the vaccine per week. With the use of these drugs, no serious complications have yet been identified. As a comparison, as of today, about 6.8 million doses of the Johnson & Johnson vaccine have been administered in the US, while about 112 million Americans have already received the first dose of the vaccine from other manufacturers. In other words, Johnson & Johnson's share is relatively small.

A few hours after the announcement of the above recommendations, there was also a reaction from the White House. According to White House COVID-19 coordinator Jeff Zients, the decision "will not have a significant impact on the vaccination plan." At the same time, he clarified that to date, the proportion of those vaccinated with the drug Johnson & Johnson is "less than 5%."

By the way, after these comments, the upward momentum of EUR/USD began to fade – the pair began to gradually roll back to the base of the 19th figure. Given the fact that the price has now overcome the upper limit of the almost two-week price range of 1.1850-1.1910, the next level of resistance is the mark of 1.1990 (the upper line of the Bollinger Bands on the daily chart), overcoming which will open the way for EUR/USD bulls to the 20th figure. To confirm the strength of the upward movement, buyers need to overcome this target, since otherwise traders will take profits en masse, and the price will again roll back to the area of the above range. At the moment, the price high of the day was fixed at 1.1943. If the EUR/USD bulls do not consolidate above 1.1990 at the end of today's trading, the pair may again fall under the wave of sales.

In conclusion, it is still necessary to recall today's inflation release, which turned out to be much better than forecasts. Thus, the overall consumer price index on a monthly basis rose to the level of 0.6% (the forecast was at the level of 0.5%) – a positive trend is recorded here for the third month in a row. In annual terms, the indicator jumped to 2.6% (from the previous value of 1.7%) – this is the strongest growth rate since September 2018. The core index (excluding food and energy prices) also showed positive dynamics, rising to 1.6% YoY and 0.3% monthly. In other words, US inflation in March "showed character", confirming the assumptions of some experts that inflation indicators will outstrip even strong forecasts.

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Thus, despite the current price dynamics of EUR/USD, the pair's downward prospects are still in force. The "ceiling" of the corrective growth is now at 1,1990 - and in my opinion, buyers are unlikely to test this target. Therefore, this upward breakthrough can be used as an excuse to open short positions at a more favorable price. The first target of the downward pullback is 1.1900, the main target is the support level of 1.1850 (the middle line of the Bollinger Bands indicator, which coincides with the Kijun-sen line on the daily chart).

Irina Manzenko,
Analytical expert of InstaForex
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