When good news is already in the price, even strong US macro statistics cannot help the US dollar. Despite the fastest acceleration in consumer prices in almost 9 years, retail sales growth at the fastest pace since May, the decline in the number of applications for unemployment benefits to the lowest level since the beginning of the pandemic, and the expansion of industrial production by 2.7%, the EURUSD pair ended the week to April 16 in the green zone. Is the basic principle of fundamental analysis "strong economy means strong currency" not working?
In fact, the markets are growing on expectations. In March, US data was more often disappointing than encouraging, but the USD index was steadily going up. Investors hoped that due to rapid vaccination, the situation in the US economy would seriously change for the better, and bought the dollar. In April, it was time to sell facts, and the main currency pair approached 1.2 at arm's length.
Does the euro have any trump cards? It is unlikely that they can be attributed to the IMF's calls to the European Union to increase fiscal stimulus by another 3% of GDP, or the reduction of forecasts for the German economy for 2021 by the country's leading institutions. Nevertheless, EUR/USD is growing, which is not particularly worrying for the ECB, because the financial conditions in the eurozone are still favorable.
Dynamics of EUR/USD derivatives and European financial conditions
The meeting of the European Central Bank together with the release of data on the business activity of the countries of the currency bloc will become the main events of the week by April 23. Euro sellers continue to believe Christine Lagarde, who argued that no matter how much the market tests the regulator for strength, it will still survive. Nonetheless, voices from the Governing Council are beginning to be heard that as the eurozone economy recovers, the ECB should begin to tolerate a rally in eurozone bond yields. An increase in interest rates on them amid falling yields on US debt became the main catalyst for EUR/USD growth in the middle of the month.
According to 60% of Bloomberg experts, the European Central Bank will slow down the purchase of assets under the PEPP by July. The same number of specialists expect that it will start giving signals about the curtailment of the program three months before the date of its official completion in March 2022. That is, in December, Christine Lagarde should be expected to have hawkish rhetoric.
In my opinion, the reasons for the EUR/USD rally should be sought in the gradual acceleration of vaccination in the eurozone. Forecasts for the economies of the eurozone and the euro were so bleak in March that they need very little to improve. On the contrary, over-optimism about the US dollar played a trick on it.
Technically, the EUR/USD quotes approached the target by the Wolfe Wave pattern near the 1.2 mark. The renewal of the April high will allow the pair to continue rallying in the direction of 1.204 and 1.208, where we can increase the longs formed from the level of 1.1935. Even in the event of a rollback after reaching the target, the euro bulls should not panic. The rebound from the supports at 1.193 and 1.188 would be a good opportunity to enter long positions.
EUR/USD, Daily chart
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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