EUR/USD is making efforts to climb to the strongest level of 2021 that is 1.2243. Another push upwards enabled the buyers to enter the area above 1.22, thus confirming the strong bullish momentum. As soon as traders cross the equator of this price level, the currency pair will hit a fresh three-year high. Last time, EUR/USD was trading at the level above 1.2243 more than three years ago, in April 2018. It seems like this scenario will come into life in the nearest future.
Interestingly, the bullish momentum has not been caused by a particular sensational event. Indeed, the economic calendar for EUR/USD is almost empty today. The catalyst was a report of secondary importance that was posted in the early American session. Traders got to know that the number of housing starts in the US contracted worse than expected in April. So, housing starts shrank 9.5% last month following a 19% surge in March. Besides, the number of building permits edged up just 0.3% in April from a 1.7% rise in March.
Under other market conditions, market participants would neglect such metrics and would hardly trigger high volatility of EUR/USD. However, the thing is that such data acted as a market catalyst. The data eventually shattered hopes of dollar bulls. Last Wednesday, dollar bulls took control over the market when the US reported on its consumer inflation.
Today, it comes as no surprise that the US dollar index slumped to the lowest level in 5 months, having sunk to the levels around 89 points. The economic data on the US construction sector was not to blame for such a nosedive. This comes as a result of regular verbal interventions of Fed's policymakers. For over a week, Fed's officials tried to assure the market that the regulator would stick to its wait-and-see stance despite a spike in consumer prices.
The dovish rhetoric was expressed by the following Fed's policymakers: Raphael Bostick, Richard Clarida, Loretta Mester, Eric Rosengren, Robert Kaplan, Charles Evans, and Barkin. All in all, it became evident that the dovish rhetoric is shared at least by the majority, unless it is the common stance. Fed's Chairman Jerome Powell has not commented on the state of affairs after a CPI report. Earlier, he reiterated that the central bank would not respond emotionally to a recovery of key economic metrics. When it comes to inflation, the Fed's leader admitted that inflation could surpass the target level temporarily. A lot of Fed's representatives also pointed out at the patchy manner of the economic recovery in the US. For example, a spike in consumer prices dragged down employment growth. The unemployment rate was expected to go down to 5.8% in April. In fact, it grew to 6.1%. The consensus suggested that the US economy could have created 990K new jobs last month, but actually the US public and private sectors added just 266K jobs. Sadly, the manufacturing sector shed jobs in April for the first time since January. Besides, investors were discouraged by retail sales and the manufacturing PMI. All this data came in the red, thus displaying a slowdown in the economic recovery or an uneven recovery in some economic sectors.
Therefore, the data on the US construction sector delivered a final blow to the bullish prospects of the US dollar. In response, traders rushed to sell the US currency, in particular against the euro.
Meanwhile, the single European currency is advancing across the board. The euro-related forex crosses confirm this trend. It means that EUR/USD is growing today not only due to the greenback's weakness. In the ranks of the ECB policymakers, there is a feud about a further agenda for monetary policy. The hawks from the ECB offered that the regulator might scale down its bond-buying program in the near future despite the ECB announcement to maintain the ongoing PEPP program until Match 2022. According to the insider information, the ECB is going to bring up this question at the policy meeting in June.
Another thing is that Europe is pushing ahead with mass vaccination, willing to get back on track and easing restrictive measures. This fact also provides EUR with support. Growing yields of German Bunds are also bullish to EUR.
Such a fundamental background proves that EUR/USD buyers will try to fix the price above resistance of 1.2243 in the medium term which is the highest level of 2021. Thus, the bulls are eager to enter the area above 1.23.
Technically, trend indicators on the charts of senior timeframes (from 4-hour and more) signal a further bullish trend. The first upward target is the above-said level of 1.2243. The major target is a bit higher at 1.2300 which is the upper border of Bollinger Bands in the daily chart. Support is seen at 1.2100 which corresponds to Tenkan-sen in the same daily chart.
